This article is part of our Rising Star Portfolios series.
I've written recently about the opportunities facing investors as the amount of data sent through the Internet is exploding thanks largely to the growth of online video. However, just because a trend is apparent doesn't mean that investors targeting the field are assured profits. Take Cisco
Against this backdrop I'm looking to put a couple of "feeler" lines in the water to look for companies that I see either as particularly advantaged by their position in the market or that can tangentially benefit from the growth in Internet traffic.
One to buy
The first company I'm going to take a small position in is longtime Fool favorite Infinera
Infinera's solution to making optical gear more effective relies on its "photonic integration technology." While that phrase looks very complex, it essentially means that the company has created chips that remove components from optical equipment and allow operators to better scale their network bandwidth in a more cost-effective manner. Essentially, Infinera's technology is extremely adept at alleviating many of the bandwidth limitations that booming Internet traffic creates.
So if their solution is so innovative, what's holding Infinera back? Like all potential disruptive innovators supplying telecom equipment, Infinera must fight against entrenched incumbents. Large competitors like CIENA
Also, while Infinera has plans to release next-generation 100G products in 2012, other competitors are already hitting the market. Verizon
Overall, I still have reservations about Infinera and that's a large part of why I'm only buying a small position in the company. However, as far as dipping a toe in the pool with a potentially disruptive company with a strong balance sheet that includes $2.71/share in cash, I feel like Infinera's a good entry into discovering companies uniquely positioned to grow along with Internet traffic in the coming years.
One to rebuy
One company I'll be rebuying that is tangentially related to the growth in data is smartphone kingpin Qualcomm
The stock has recently been hit over supply concerns after the Japan earthquake and general mobile fears. I believe both these fears are largely overblown. Mobile demand still looks extremely strong and Qualcomm's Snapdragon processor continues to be the most popular processor in Android phones. I'll take the stock's recent pullback as an opportunity to add a little bit to my position in what I consider a core stock for mobile investors.
Tomorrow I'll be buying about $500 of both Qualcomm and Infinera for my "Bits Portfolio." With Qualcomm, I'm adding to my position in a longtime favorite mobile stock. With Infinera, I'm testing the telecom equipment waters and could add more to my position if I see what I like. If you're interested in either Qualcomm or Infinera but want to learn more about them before taking the plunge, add either one (or both) to our free watchlist service to get updates from me and other Foolish writers.