Shares of several fiber-optic networking stocks rose at least 12% in February, according to data from S&P Global Market Intelligence. Fiber lasers manufacturer IPG Photonics (IPGP -0.97%) led the pack with a 16.6% gain. Long-haul networking expert Infinera (INFN -0.27%) added 16.1%, laser and optics specialist Coherent (COHR) rose 12.6%, and optoelectronic components maker II-VI (COHR -3.87%) posted an 11.9% return.
IPG Photonics and Infinera announced solid earnings in February, and II-VI's strong report at the very end of January also factored into this story, but none of these earnings-based moves was particularly large. Instead, the sector as a whole simply bounced back from several months of pain due to signs of improving market conditions.
At the end of January, II-VI investors had suffered a 16% price drop in six months while IPG Photonics took a 20% haircut. Over the same period, Coherent's shares fell 34% and Infinera's stock plunged 48%. Both II-VI and Infinera disappointed investors in their November reports, but that wasn't the real problem. Wary of the ongoing trade dispute between Washington and Beijing, many investors were giving up the hope that a healthier trade environment could kick-start a sputtering market for network devices -- preferably before the incoming tidal wave of 5G wireless networking upgrades.
February offered some positive tea leaf readings on that front. In particular, Infinera pointed out a stronger order pipeline and rising order volumes. IPG posted better results in Europe and stabilizing trends in China.
Optical networking stocks seem poised for a comeback right now. Coherent, II-VI, and IPG Photonics all trade at very reasonable multiples after their slides in recent months. Analyst firm MKM Partners even calls Infinera "very inexpensive" at these prices, despite the company's negative earnings and cash flows. The stock is valued below the company's book value, after all. All of these are deep discounts, assuming that the networking market turns around before they go out of business. That's a reasonable assumption in my view, and I wouldn't mind owning any or all of these battered stocks. February's gains didn't do much to undermine this value-hunting idea.