Ciena: What Can Happen in a Bear Market

Sep. 7.08 | About: Ciena Corporation (CIEN)

Ciena (NASDAQ:CIEN) is a great example of what can happen to a stock in a bear market. The stock was already down from 48 to 17 before their earnings announcement (see conference call transcript). The stock was trading at 8 times next year's expected earnings when you exclude net cash. It seemed like the stock was already pricing in some sort of disappointment.

Ciena gave negative earnings guidance and the stocks is down another 25%. Ciena provides necessary equipment for internet providers to expand bandwidth. It is obvious that we are bumping up against our bandwidth capacity as both Comcast (CMSCA) and Time Warner (TWC) recently started cracking down on "bandwidth hogs", customers who use too much bandwidth. Even if they can get rid of the bandwidth hogs, eventually they will need to expand their networks as people watch more video on the internet. Ciena will be the beneficiary.

However, in a bear market, cheap can get cheaper. That is why, despite the fact that I see quite a few cheap stocks that eventually should go higher, I am keeping my wallet in my pocket until I believe we are closer to the end of the bear market.

As an aside, if telecom companies that should be spending money and have the cash are cutting back, what do you think is happening to companies tight on cash and with spare capacity?

Disclosure: none