Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Fiber-Optic Networking Stocks Fell in December

By Anders Bylund - Updated Apr 17, 2019 at 4:29PM

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

This industry experienced a lot of high-stakes political intrigue last month. No one enjoyed it very much.

Check out the latest NeoPhotonics, IPG Photonics, and Coherent earnings call transcripts.

What happened

Many fiber-optic networking stocks fell a long way in December of 2018. Optoelectronic components-maker NeoPhotonics ( NPTN 1.45% ) suffered a 15.8% drop, according to data from S&P Global Market Intelligence. Fiber laser specialist IPG Photonics ( IPGP 1.27% ) took a 20.3% haircut, while shares of high-power lasers expert Coherent ( COHR 0.31% ) fell 23.5% lower.

So what

The rout started in the first week of December, when Chinese communications giant Huawei's CFO was arrested in Canada on suspicions of violating trade sanctions against Iran. Huawei is a major customer for many fiber-optic hardware providers, accounting for roughly 40% of NeoPhotonics' quarterly revenues.

At the same time, the trade wars between Beijing and Washington continued to simmer. The production pipeline for production-level networking gear often involves shuffling components and systems across the sensitive Chinese-American trade borders, making it more difficult for these companies to hammer out the revenue growth and rising profits that investors would expect. As a whole, IPG Photonics shares fell 47% lower in 2018 and Coherent's investors took a 63% loss.

A bundle of fiber-optic networking cables set against a backdrop of thunderclouds and lightning strikes.

Image source: Getty Images.

Now what

Fiber-networking stocks look cheap, in general, these days but the pressure that's keeping them down must eventually find a release. So NeoPhotonics, IPG, and Coherent might be primed for a big rebound from their current downswings -- but with the usual caveats.

Nobody knows exactly when the trade tensions between China and the U.S. will end or exactly how the resolution will affect the long-term trade policies. Market timing is never easy, but political gamesmanship only adds to the difficulty. So these stocks may continue to swing lower before they turn back up again.

Before we reach the market bottom, some of the weaker hands in this business may file for bankruptcy or get gobbled up by stronger rivals at bargain-bin prices. Separating the winners from the losers in that scramble is beyond the scope of this article, but let's just say that NeoPhotonics looked undervalued a few months ago and I'm impressed by IPG Photonics' rock-solid balance sheet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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

Coherent, Inc. Stock Quote
Coherent, Inc.
COHR
$258.79 (0.31%) $0.80
IPG Photonics Corporation Stock Quote
IPG Photonics Corporation
IPGP
$164.54 (1.27%) $2.07
NeoPhotonics Corporation Stock Quote
NeoPhotonics Corporation
NPTN
$15.39 (1.45%) $0.22

*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 service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

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

Our Most Popular Articles

Premium Investing Services

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