Several tech stocks have slumped over the past year amid concerns about the U.S.-China trade war, tariffs, and other macro headwinds. Sentiment about the markets recently improved in anticipation of the upcoming trade talks next month, but many unloved tech stocks remain well below their historic highs.
1. Infinera: an unloved optical systems maker
Infinera sells wave division multiplexing (WDM) systems, which enable service providers to boost the capacity of their networks without laying down additional fiber. That’s why it was once considered an ideal play on the “super cycle” in-network upgrades, which support the growth of cloud and streaming services.
However, Infinera generated most of its revenue from long-haul WDM systems instead of shorter-range WDM systems for the metro and data center interconnect (DCI) markets. Many service providers prioritized those shorter-distance upgrades, causing Infinera’s double-digit sales growth in the first half of 2018 to fade to the single digits.
Infinera subsequently acquired Coriant, an industry peer that focuses on shorter-range systems, to boost its revenue growth. Unfortunately, Infinera’s initial expectations for Coriant were too lofty, and it slashed those forecasts last November. The bulls gave up, and Infinera’s stock plunged from $12 last May to about $3 this July.
Yet Infinera gradually rebounded to about $5 after its revenue rose 47% annually in the second quarter, representing an acceleration from its 46% growth in the first quarter. Its forecast for 60%-70% growth in the third quarter with a sequential expansion to its gross margin also indicated that it had turned a corner.
Infinera still isn’t profitable, but it expects its synergies with Coriant to boost its free cash flow and non-GAAP profits to positive levels by the fourth quarter. Based on those forecasts, this stock looks dirt cheap at 0.7 times this year’s sales.
2. JD.com: a retail giant in China
JD is China’s biggest direct retailer and second-largest e-commerce player after Alibaba. The stock topped $50 last January, but its slowing growth, rising expenses, and a rape allegation against CEO Richard Liu caused it to revisit its IPO price of $19 by November. The trade war exacerbated that sell-off.
However, the rape allegation was dropped in December, and JD’s subsequent earnings reports indicated that its business was stabilizing. Its revenue rose 23% annually in the second quarter, marking its strongest growth in three quarters, and it expects 20%-24% growth in the third quarter.
On the bottom line, JD’s adjusted net income rose more than seven-fold annually as its gross margin expanded and it generated more higher-margin revenue from its logistics services for third-party sellers. Over the long term, JD plans to reduce its operating expenses by automating most of its logistics platform with warehouse robots, delivery drones, and autonomous delivery vehicles…
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