Cowen’s 2014 Tech Stock Winners From Stronger Capital Spending

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While some may have been disappointed with the guidance from AT&T for revenues and earnings, you can be sure that communication equipment tech stock owners are very happy. The 2014 capital expenditure (capex) guidance from AT&T, Verizon and Comcast is coming in much higher than Wall Street was expecting.

The analysts at Cowen in a new research report point out that among carrier-focused communication equipment suppliers in their coverage universe, they see numerous companies as standing to benefit from the more favorable 2014 capex outlook for these three key carriers. They also believe certain top stocks offer particularly favorable risk-reward as measured by the probability and magnitude of upside opportunity relative to downside risk.

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While many companies have various levels of exposure to the carriers and top cable companies, the Cowen team is focused on the top stocks to buy that will benefit from the increase in spending.

BroadSoft Inc. (BSFT) recently announced that Sprint has selected the company's BroadWorks platform to enhance voice-over-Internet-protocol (VoIP) services made available by Sprint to both its consumer and business customers. Michael Tessler, president and chief executive officer of BroadSoft said, "We are committed to providing superior technical capabilities that enable our service provider customers to offer the highest quality communications experience and look forward to helping Sprint achieve these objectives through our BroadWorks platform." This and other major deals could make the stock a top performer in 2014. The Thomson/First Call price target for the stock is $33.30. BroadSoft closed Wednesday at $29.96.

Ciena Corp. (CIEN) is a company that Cowen believes could be the top beneficiary of the increase in spending. Ciena management is optimistic about its prospects in the United States and in markets such as Brazil and India, where it has landed Tier 1 design wins. Recently, it also won a contract from Cablevision Argentina, which is a leading cable TV and Internet services provider in Argentina, to enhance its broadband network countrywide. The company is rapidly reducing its losses, and the earnings growth outlook for the next five years is also quite promising. According to Yahoo! Finance, investors can expect Ciena's earnings to improve at an annual rate of 16.7% for the next five years. The consensus price target for the stock is $25.74. Ciena closed Wednesday at $22.88.

Cisco Systems Inc. (CSCO) was hammered after a bad earnings report last year and is almost a value trade now. The networking giant still dominates many of the vertical segments it sells into, and it has a strong cash position for acquisitions. Investors are paid a solid 3.1% dividend. The consensus price target for the venerable mega-tech company is $23.46. Cisco closed Wednesday at $21.65.

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F5 Networks Inc. (FFIV) seems to be a name that quite a few major firms we cover suggested as a top stock to buy for 2014. Many Wall Street analysts believe the company is well positioned to see increasing market share, accelerated product growth and strong earnings performance, which should result in further share appreciation. The company is primed to bring a strong offering of virtual services based on its experience with traditional servers, and the company should benefit as digital traffic continues to explode. The company is likely to become an important supplier of virtual firewalls, ADCs, policy enforcement and other virtual network services in emerging overlay environments. The consensus price target for this top name is $116.06. Shares closed Wednesday at $107.48.

Juniper Networks Inc. (JNPR) is also a top name to buy, as the company may see a large revenue increase in 2014. The company is seen as well positioned fundamentally, given ongoing routing investment and the company's own product refresh. Some on Wall Street think that a management change is a risk in early 2014. The consensus price target for the stock is $27.78. The stock closed Wednesday at $27.73.

The Cowen research note also listed the following companies that receive significant revenue from the major carriers and cable companies: ADTRAN, Alcatel Lucent, Arris Enterprises, Sonus Networks and Westell Technologies.

Some of the Wall Street firms that we cover hinted last year they thought that total capex spending could be higher. Until companies actually come out and confirm it though, it remains a jump-ball. With the recent confirmation of increased spending, some of the Cowen top stocks to buy may benefit and have a nice tailwind in 2014.

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