Sector Snap: Optical Equipment Makers

Shares of makers of optical communications equipment were mixed Wednesday afternoon after an analyst said problems from 2007 will likely spill over into 2008, but investors may still find some worthy stocks in the sector.

"We recognize that caution is warranted in 2008 given limited visibility, macro uncertainty, and a history of choppy performance from optical component companies," Dubinsky said in a note to clients. "Still, we are positive from an investment perspective as the risk/reward for most optics stocks is very favorable."

Dubinsky upgraded shares of Optium Corp. to "Outperform" from "Perform" with a $10 price target, and said 2008 will be a strong year based on product cycle momentum.

"Optium is one of the more controversial stories in the optics space with investors cautious on both long-term strategy and near-term demand," he said.

Shares of Optium rose $1.48, or 24.5 percent, to $7.53 in afternoon trading.

Dubinsky downgraded Oplink Communications Inc. to "Perform" from "Outperform" and said the stock will remain in its current range until margin issues and the company's growth profile become clear.

Oplink's success will depend on how well it integrates OCP, which is bought last November, he said.

"Though these issues should be resolved exiting the year and management is likely conservative with its projections, near-term results may prove volatile," Dubinsky said in a client note.

Shares of Oplink fell $1.49, or 11.6 percent, to $11.39.

EXFO Electro Optical Engineering Inc. was downgraded to "Perform" from "Outperform" by Dubinsky, who said the company continues to have currency problems.

The company's margins continue to be hurt by a weak U.S. dollar, and though steps have been taken to improve results, "currency risk is largely out of the company's control and will be an overhang," he said.

Dubinsky said investors should wait until a projected revenue jump in the second half of the year takes place before boosting the stock.

Shares of EXFO fell 12 cents, or 2.8 percent, to $4.11.

Elsewhere in the sector, shares of Avanex Corp. rose 3 cents, or 3.4 percent, to 79 cents; shares of Emcore Corp. gained 55 cents, or 5.2 percent, to $11.06.; shares of JDS Uniphase Corp. added 26 cents, or 2 percent, to $13.09; and shares of Finisar Corp. increased 5 cents, or 4.1 percent, to $1.28.