Stock Surges 38% in Three Weeks; Is There More Upside Potential?

penny stock investingOver the last decade (the dawn of the broadband revolution), Internet traffic has grown, on average, 45% a year. It is expected to grow 32% between now and 2015. Furthermore, the increasing popularity of smartphones, tablets, and notebooks has led to a surge in the demand for online video, social networking, and multimedia applications; which also consumes a lot of bandwidth. (Source: Cisco web site, last accessed December 6. 2012.)

By 2015, more U.S. Internet users will access the Internet through mobile devices than through PCs or other wireline devices. By 2015, an estimated 2.7 billion people will use the Internet. This represents over 40% of the world’s population, and nearly a billion more users than in 2010. Most of this growth can be attributed to mobile broadband, especially as tablets become more affordable. (Source: IDC press release, “IDC: More Mobile Internet Users Than Wireline Users in the U.S. by 2015,” September 12, 2011.)

Infinera Corporation (NASDAQ/INFN) designs photonic integrated circuits (PICs) intended to replace much larger components within optical networks. The technology stock’s customers include cable system operators, ISPs, and telecommunications carriers, such as Cox Communications, Interoute, Deutsche Telekom, Global Crossing, and Level 3 Communications.

The technology stock has a market cap of $649.5 million, $168.8 million in cash, and no long-term debt.

On October 24, Infinera announced that third-quarter revenue increased 7.8% year-over-year to $112.2 million, and climbed 20% month-over-month. The company’s third-quarter net loss improved to $19.1 million, or $0.17 per share from $21.8 million, or $0.21 per share, in the third quarter of 2011. During the second quarter of 2012, the technology stock reported a loss of $29.5 million, or $0.27 per share. (Source: Infinera press release, “Infinera Corporation Reports Third Quarter 2012 Financial Results,” October 24, 2012.)

“The DTN-X is experiencing strong traction around the world,” said Tom Fallon, President and CEO. “We now have 16 purchase commitments, representing five new customers and 11 existing customers. We are pleased with the very strong initial support for the DTN-X, and we are very optimistic about the outlook for its continued adoption.”

Back on September 15, 2011, technology stock unveiled its “DTN-X,” a network platform designed for increasing demand for bandwidth driven by video, mobile, and cloud-based services. (Source: Infinera press release, “Infinera Unveils the DTN-X, the First Multi-Terabit Packet-Optical Transport Network Platform Based on 500 Gb/s Photonic Integrated Circuits,” October 24, 2012.).)

INFN Infinera corp Nasdaq stock market chart

Chart courtesy of

After spending much of the year in a downtrend, Infinera’s share price rebounded on strong third-quarter results and a solid outlook. More encouragingly, the technology stock’s share price recently broke out of the downtrending channel; a bullish sign.

Even though Infinera’s share price has climbed an impressive 38% over the last three weeks, I think the technology stock has a lot more room to run in both the short and long term.

Sustained growth in Internet traffic is driving operators to upgrade their networks to 100 Gb/s and higher speed optical transmission. Here are three reasons why Infinera has great long-term growth potential: the cloud; mobile; and video.

According to Forrester Research, the global cloud computing market will reach almost $241 billion by 2020. With most applications expected to be based in the cloud, bandwidth needs to grow to accommodate the demand. (Source: Garner, N., Forrester: Cloud Market to Hit $240 Billion by 2020,” Simply Security, April 29, 2011; last accessed December 7, 2012.)

Mobile traffic is growing rapidly, thanks to strong sales of smartphones, tablets, and laptops with a wireless connection. As a result, data usage is expected to increase 18-fold by 2016, and to support this, there has been a massive rollout with 3G, 4G and Wi-Fi networks. (Source: “Cisco Visual Networking Index: Forecast and Methodology, 2011-2016,” Cisco web site, May 30, 2012; last accessed December 7, 2012.)

Thirdly, optical capacity must increase to meet the growing demand of streaming video from multiple sources, including YouTube, Netflix, and Amazon. For example, a fully equipped DTN-X is planned to have enough capacity to stream a movie to each of Netflix’s 23.6 million members simultaneously.

Infinera is a financially robust company with growing revenues, and improved losses. With growing demand for increased mobile, video, and cloud bandwidth, the technology stock’s recently launched award-winning DTN-X is gaining strong traction, and should be the company’s backbone.

We Told You So…

On August 10, financial expert Sasha Cekerevac introduced you to Triangle Petroleum Corporation (NYSE/TPLM; AMEX/TPLM). The company has both exploration and production operations within the Bakken Shale and Three Forks area of North Dakota and Montana. The company has over 83,000 net acres of land available, containing approximately 1.5 million barrels of oil as proven reserves.

Cekerevac noted that volatile oil prices have a direct impact on oil stocks. With August oil prices on the rebound, oil stocks were beginning to look more attractive.

He was right. When Cekerevac first brought Triangle Petroleum to your attention it was trading at $6.29; on October 1, it hit an intra-day high of $7.91, for a short-term gain of 25.7%.