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Top 10 Networking Stocks

Posted on Tuesday, Sep 16th 2008

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
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.

Chart for Cisco Systems, Inc. (CSCO)

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

Chart for Juniper Networks, Inc. (JNPR)

3. 3Com
A giant in the networking industry in the 1990s, 3Com is a shadow of its former self. But 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 US economic crisis, 3Com’s low-cost strategy is an asset, and I guess it is time Cisco considers slimming down. Suggested reading: my interview with Eric Benhamou, my post on the Bain Capital transaction that fell through, and recent earnings coverage.

Chart for 3Com Corporation (COMS)

4. Brocade/Foundry
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.  

Chart for Brocade Communications Systems, Inc. (BRCD)

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

Chart for F5 Networks Inc. (FFIV)

6. Polycom
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.

Chart for Polycom, Inc. (PLCM)

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

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

Chart for Nortel Networks Corp. (NT)

9. Alcatel
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.

Chart for Alcatel-Lucent (ALU)

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

Chart for Level 3 Communications Inc. (LVLT)

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

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Surprised you did not feature Riverbed Technology http://www.riverbed.com at all.

Sid Tuesday, September 16, 2008 at 1:08 PM PT

[…] last week, I placed 3Com on my list of Top 10 Networking Stocks. I have always believed that 3Com’s low-cost strategy is its major asset, and new CEO Bob Mao has […]

3Com Reports Strong Quarter - Sramana Mitra on Strategy Tuesday, September 23, 2008 at 9:23 AM PT