Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Many Fiber-Optic Networking Stocks Fell Last Month While Oclaro Raced 33% Higher

By Anders Bylund – Updated Apr 13, 2018 at 9:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One hand-picked buyout in an industry craving some sunlight triggered some roller-coaster action among the acquisition target's peers.

What happened

Shares of Oclaro (OCLR) gained 33.3% in March of 2018, according to data from S&P Global Market Intelligence, riding a generous buyout premium as longtime rival Lumentum (LITE -1.22%) launched a takeover bid. On the flip side, many other companies in the fiber-optic networking market saw their share prices shrink last month -- largely because of a lack of Oclaro-style buyout attention for those companies.

A bundle of optical fibers in colorful lighting.

Image source: Getty Images.

So what

Notably, Applied Optoelectronics (AAOI -5.32%) was held up as a likely takeover target before the ink had dried on the Oclaro/Lumentum deal, but the stock started to fall a couple of weeks later as no such bids materialized. Applied Optoelectronics shares fell 10.3% lower in March, but the damage was repaired in early April when analyst firm Rosenblatt said that the company's largest data center customers are ramping up their computing infrastructures very quickly at the moment.

Finisar (FNSR) followed in AAOI's footsteps in March, surging more than 10% higher around the announcement of Lumentum's Oclaro deal, but losing it all amid deafening radio silence. By the end of March, the stock had fallen 12.2% lower, and Finisar has not enjoyed any glowing analyst analyses in April.

Now what

All things considered, there's no doubt that high-speed networking will be a large and vibrant market for many years to come. The sector has its ups and downs, triggered by events such as regulatory crackdowns and rollouts of better and faster hardware generations. Both of those example headwinds were in full force in late 2017, and now things are looking up again.

It's a sector full of fantastic investment ideas. Even the losers in the upcoming upswing are likely to gain some ground in Oclaro-like buyout deals. Consolidation can be a powerful value builder.

That being said, Oclaro already got its buyout exit and is just waiting for the final regulatory approvals before cashing that check. AAOI is smaller and more volatile than Finisar, but also more profitable when times are good. There's a place for both of these stocks in many investing portfolios, each one seemingly tailored for a particular investing style. High-rolling growth seekers would go for AAOI every time, while those who prefer many years of proven success and a more stable financial platform can gravitate toward Finisar.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Finisar Stock Quote
Oclaro, Inc. Stock Quote
Oclaro, Inc.
Applied Optoelectronics, Inc. Stock Quote
Applied Optoelectronics, Inc.
$2.85 (-5.32%) $0.16
Lumentum Holdings Inc. Stock Quote
Lumentum Holdings Inc.
$70.40 (-1.22%) $0.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.