Straightforward Catalysts Spark Strange Winners

Market-moving news doesn't always strike where you'd expect it to.

Today, the market relaxed as the tense fiscal cliff talks led to a partial solution. And what sector do I see jumping sky-high on the news? Telecom infrastructure players. I mean, the guys who make or install the hardware needed for wired and wireless network upgrades.

Not at all what you might have expected, I'd bet. But that's what's happening:

Company

Gain Today

CAPS Score (out of 5)

Sonus Networks (NASDAQ: SONS  )

11.2%

***

Infinera (NASDAQ: INFN  )

7.8%

*****

Riverbed Technologies (NASDAQ: RVBD  )

7.2%

*****

Brocade Communications Systems (NASDAQ: BRCD  )

6.8%

****

Entropic Communications (NASDAQ: ENTR  )

6.5%

***

Sources: Google Finance and Motley Fool CAPS.

The usual culprits for such price moves -- analyst upgrades and earnings beats -- aren't to be found today. Instead, these moves are nearly all thanks to investors believing the fiscal cliff will lead to a spending spree benefiting the smaller suppliers of telecom.

The big American telecoms like AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) have gained "only" 3% and 1.8% today, respectively. That's not too shabby, but it pales in comparison to the stocks listed in the table above. While AT&T and Verizon will benefit from a stronger economy, they'll also see their network buildout budgets boosted by the lack of dramatically higher taxes, while their customers gained some confidence to spend money on smartphones and networking services again.

So with the near-term uncertainty of the fiscal cliff behind them, the telecoms look ready to rise to the occasion by actually investing in their infrastructure. That's a bit of a double-edged sword. Big Red and Ma Bell will benefit from a better economy in the year ahead, but they're out of excuses for holding back on their capital expenses any longer.

The equipment suppliers don't have that inconvenient factor to worry about, so their investors can simply enjoy a brighter future as the big orders should start rolling in. It's a little bit speculative, but a reasonable catalyst nonetheless. Furthermore, many of these stocks come with heavy short-selling bets. A quick jump like today's can shake out weaker shorting hands, but the short squeeze effect won't last long.

Sometimes you're better off investing just beyond the most obvious winners.

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