Communications equipment makers, such as Dow component Cisco Systems Inc. (NASDAQ:CSCO) and rival Juniper Networks Inc. (NASDAQ:JNPR), performed worse than the Nasdaq Composite during the recent broader market pullback. That spells opportunity with the group in the eyes of some analysts.
While overall carrier spending remains more subdued, capital-expenditure guidance from the tier-1 U.S. operators point towards modest second-half improvement relative to the first half of 2015, even though the outlooks for many of our covered companies embed flattish second- and first-half trends.Importantly, emerging market exposures remain modest, with most of our covered companies maintaining low-single-digit or less exposure to China, said Wells Fargo Securities in a note out Friday.
Wells Fargo has buy ratings on Cisco, Juniper, CommScope Holding Co. (NASDAQ:COMM), Radware Ltd. (NASDAQ:RDWR), Ciena Corp. (NYSE:CIEN), Arista Networks (NYSE:ANET) and F5 Networks (NASDAQ:FFIV).
If Wells Fargo's faith in those names is rewarded, that should be good news for the iShares North American Tech-Multimedia Networking ETF (NYSE:IGN). Of the seven aforementioned stocks, four are top 10 holdings in the $142.3 million IGN.
Juniper, Cisco, CommScope and F5 Networks combined for 26.5 percent of IGN's weight as of Aug. 27, according to iShares data. Ciena is IGN's 12th-largest holding at a weight of almost four percent while Arista Networks and Radware are not among the ETF's 26 holdings.
We remain positive on the communications-equipment group and continue to prefer names like CommScopre, Cisco, Juniper and Ciena where fundamentals are likely to improve and valuations remain attractive. We also continue to recommend Arista given the companys exceptional growth profile and high exposure to domestic data center builds where we believe activity is likely to remain robust. We view F5 and Radware as inexpensive ways to play continued strength in the data center and the security markets, according to the Wells Fargo note.
The PowerShares Dynamic Networking Portfolio (NYSE:PXQ) is another ETF to consider for getting exposure to communications equipment manufacturers. PXQ is a departure from IGN because the former is a smart beta ETF with its 30 holdings selected based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value, according to PowerShares.
Juniper, Cisco and Arista are top 10 holdings in PXQ, combing for about 13.3 percent of the ETF's weight. F5 Networks, CommScope and Ciena combine for another 8.5 percent of PXQ's weight.
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