Top 10 Networking Stocks

The phenomenal trends of online video through YouTube, video conferencing, and online entertainment are driving the networking industry. Here’s my list of the top 10 networking stocks.

1. Cisco (CSCO)

Cisco is the giant in the networking industry and the leading beneficiary of the online video and conferencing trends. It is trading around $22 with a market cap of about $132 billion.

2. Juniper (JNPR)

The next biggest networking player is Juniper. In the core router market, it has about 30% share versus Cisco’s 55%, which is the closest any competitor has ever gotten to Cisco.

3. 3Com (COMS)

A giant in the networking industry in the 1990s, 3Com is a shadow of its former self. However, what helps it make it to the No.3 position in my list is its China-based joint venture, H3C. Especially in the context of the current U.S. economic crisis, 3Com’s low-cost strategy is an asset, and I guess it is time Cisco considers slimming down.I would suggest reading my interview with Eric Benhamou, my post on the Bain Capital transaction that fell through, and my recent earnings coverage.

4. Brocade/Foundry (FDRY)

Foundry was recently acquired by Brocade (BRCD) and this combination makes it a strong candidate. I have speculated that the industry will undergo consolidation to offer competition for Cisco, and competition is in fact getting tougher for Cisco in niche areas.  

5. F5 (FFIV)

F5 is another company that is going strong in its niche area of application delivery networking.

6. Polycom (PLCM)

Polycom is a strong beneficiary of the video conferencing trend. The economic downturn could also force more companies to cut their traveling expenditure and turn to video conferencing. For the company’s long-term strategy, read my interview with CEO Bob Hagerty.

7. Akamai (AKAM)

Akamai is yet another strong beneficiary of the online video trend through its niche area of application acceleration.

8. Nortel (NT)

Nortel also stands to gain from the online video trend, but it first needs to get a solid strategy in place.

9. Alcatel-Lucent (ALU)

Alcatel is another online video beneficiary that badly needs a turn around strategy. It has yet to report any profit since its merger with Lucent in 2006. It is currently trading around $4.88 with a market cap of about $11.02 billion.

10. Level 3

Level 3 (LVLT) is an application acceleration provider that is fast becoming a strong competitor to Akamai through its price cuts.

As always, in lists like these, not all stocks are recommended as immediate buys. These are the stocks to watch, and what you need to do is craft a specific strategy for each of them. Having said that, both Polycom and Akamai are on my list of Long Term Hold stocks.

Disclosure: None

Comments

[johnDoe:]

Level 3 is not an application acceleration provider. They provide content delivery and streaming services through their acquisition of the SAVVIS CDN assets (former Sandpiper/Digital Island) and enhancements to those assets which they purchased over a year and a half ago. Application acceleration is not CDN.

2008 Sep 17 05:35 PM

[NetGuy:]

I think that there are two important players that you've missed.

HPQ - Hewlett-Packard Company, whose ProCurve division is number 2 in layer two switches, AHEAD of 3Com, and who has made rock-solid layer two equipment for a couple of decades now. Even though ProCurve is a very small part of a large company, they are in increasingly important network player, who gets strong synergies from the other HP divisions.

And ADTN - AdTran, who, while they don't have the name recognition of the other players, has quitely taken over the #2 position in routers by units. These guys are shipping a LOT of small routers, with an interesting support plan that makes their products VERY attactive to large ISPs and cable companies.

2008 Sep 17 10:18 PM