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Here's a Niche with Fat 2018 Returns

John Blank
Here's a Niche with Fat 2018 Returns

With mega-cap FANG Tech names like Facebook (FB) blowing up, it might be time to look at smaller-cap Tech names in industry niches less well-known.
One niche fits that bill well — the Computer Networking industry space is populated with 10 companies, many of which are small-cap names.

And there’s a “Bullish Tell” --

The Computer Networking Zacks Industry Rank is currently at #41 out of 265 industries (in the top 16%). That is exceptional. This top Zacks industry rank gets fresh support from 7 positive earnings estimate revisions and only 2 negative revisions across the companies. So we know. This niche is indeed growing its vitality within the Info Tech ecosystem:

From strong earnings fundamentals come great stocks!

To no one's surprise — given the aggregate earnings estimate revision data I shared — this niche is one place you can still make returns.

The YTD 2018 shareholder return for this industry is +15.2%. The S&P 500 is flat at -0.23%. Any broad headwinds the rest of the stock market faces are not hitting home as hard here, if at all.

Traders and retail investors often fear what they don’t know. They do not readily buy and sell stocks in a niche like this. So let’s discuss, in simple terms, what the ‘Tech’ is doing.

A network consists of two or more computers that are linked in order to share resources (such as printers and CDs), exchange files, or allow electronic communications. The computers on a network may be linked through cables, telephone lines, radio waves, satellites, or infrared light beams.

In short, a computer network, or data network, is a digital telecommunication network, which then allows its various ‘nodes’ to share resources.

Having put that formal description in play, let’s put it to work in some hot stocks.
Below I list 2 companies. These two successful Computer Networking business models are worth exploring in detail.

Netgear (NTGR): This $1.7B market-cap stock holds a Zacks #1 (STRONG BUY) rank and also holds a desirable long-term Zacks VGM score of B.  
The stock market beta of 1.93 tells you this is a stock that can move much more than the market. And the forward P/E of 17.81 tells you it is fully, but not unfairly, valued.  

Projected annual EPS growth of +19% y/y is excellent. The last quarterly EPS surprise was +7.6% and the average of the last four surprises is +10.2%. The company reports again on April 25th.

NETGEAR, Inc. is a global networking company that delivers innovative products to consumers, businesses and service providers.

For consumers, the company makes high performance, dependable and easy to use home networking, storage and digital media products to connect people with the Internet and their content and devices.

For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of big IT. The company also supplies top service providers with retail-proven, mobile broadband solutions for their customers on the go.

NETGEAR products are built on a variety of proven technologies such as wireless, Ethernet and Powerline, with a focus on reliability and ease-of-use.

NetScout Systems (NTCT): This $2.6B market cap stock holds a Zacks #1 Rank. However, it holds a less desirable long-term Zacks VGM score of C.  

The stock market beta of 1.52 says this stock can move more than the market too. The forward P/E of 18.21 is in line with Netgear’s valuation ratio, which is not surprisingly, given it is of a similar size and in a similar industry niche.  

Note this though: Projected annual EPS growth of -26% tells you this is a turnaround stock. The last quarterly EPS surprise was +3.0% and the average of the last four surprises is +3.8%. The company reports again on May 3rd.

NetScout Systems, Inc. is a leading provider of business assurance - a powerful combination of service assurance, cyber security, and business intelligence solutions - for today's most demanding service provider, enterprise and government networks.

NETSCOUT's Adaptive Service Intelligence (ASI) technology continuously monitors the service delivery environment to identify performance issues and provides insight into network-based security threats, helping teams to quickly resolve issues that can cause business disruptions or impact user experience.

NETSCOUT delivers unmatched service visibility and protects the digital infrastructure that supports our connected world.

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