Technology

China Optical Demand Still Red Hot: 4 Stocks to Buy With Big Upside Potential

Lumentum

This company looks to benefit big-time from the Facebook Voyager project. Lumentum Holdings Inc. (NASDAQ: LITE) manufactures and sells optical and photonic products in the Americas, the Asia-Pacific, Europe, the Middle East and Africa. Its Optical Communications segment offers components, modules and subsystems that enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables.

The Commercial Lasers segment offers diode, direct-diode, diode-pumped solid-state, fiber and gas lasers. This segment serves customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, and remote sensing, as well as in precision machining, including drilling in printed circuit boards, wafer singulation, and solar cell scribing. Its lasers products are used in various original equipment manufacturer applications.

This company is expected to provide Facebook with an open line system with white boxes such as terminal amplifiers and reconfigurable optical add-drop multiplexers. This is all part of Facebook’s extensive new Voyager platform.

The analysts cited this special opportunity in a recent report:

Lumentum could potentially sell its VCSEL solution into handset devices for 3D sensing applications this year. Management has indicated there is interest and commitment from device manufacturers to add 3D sensing, but a number of factors could prevent 3Dsensing from contributing any revenues in 2017–leading to us to consider this opportunity as an option for 2017 as we have zero contributions from 3D sensing incorporated in our model.

Stifel has a $45 price target. The consensus price objective is in line at $45.10. The stock closed on Wednesday at $38.10.

Oclaro

This company posted outstanding quarterly results and recent guidance for the next quarter was very positive. Oclaro Inc. (NASDAQ: OCLR) designs, manufactures and markets lasers and optical components, modules and subsystems for the optical communications, industrial and consumer laser markets worldwide.

The company’s products generate, detect, combine and separate light signals in optical communications networks. It offers client side transceivers, including pluggable transceivers; line side transceivers; tunable laser transmitters, such as discrete lasers and co-packaged laser modulators; lithium niobate modulators to manipulate the phase or the amplitude of an optical signal; transponder modules for transmitter and receiver functions; and discrete lasers and receivers for metro and long-haul applications.

The company reported adjusted earnings per share and revenue that beat Wall Street expectations. For the current quarter ending in April, Oclaro said it expects revenue in the range of $156 million to $164 million.

The $12 Stifel price target is less than the $13.08 consensus target. The stock closed most recently at $9.45.

The need for speed is going nowhere but up, and these top companies will continue to be at the forefront. It is important to remember that these stocks are very aggressive plays and not for investors with low risk tolerance.

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