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Five Reasons to Sit Out Ciena


The company will have to blow out the first-quarter estimate to really gain any new interest.

There's little doubt about where I've stood on Ciena (CIEN), the Maryland-based networking company. If you aren't aware, I haven't exactly been its biggest fan (see Say "See You Later" to Ciena.)

Of course, the bulls will cheerily point to the scoreboard -- or in other words, the fact that the company is trading in close proximity to its 52-week high -- and claim that I'm the fool. But I stand firm in my take. In fact, here are some of my latest thoughts on the situation ahead of the company's first-quarter call, which is scheduled for March 4.

In my opinion, this market is overbought and we're due for a correction. If I'm right, I certainly don't want to be long a company like Ciena, for which I see few catalysts on the near-run horizon, and which is expected to post a decent-sized loss this year and a minimal profit next year.

I think the company is going to need to blow out the first-quarter estimate to really gain a lot of new eyeballs. As things stand now, the estimate is a loss of $0.06. While I think it could come in north of that, so what if it does? My mind drifts toward Cisco (CSCO) when I hear the word "network," which isn't cheap at 15.8 times this year's estimate, but is a heck of a lot more attractive, all things considered.

I certainly don't think the Stifel downgrade, which Justin Sharon mentioned in his column late last week, will be a positive for the stock in the coming days.

4. As I pointed out in an article this past week, there was a smidge of insider activity toward the latter part of last year, which I thought was a decent sign. But I'm not about to belly up based upon that minimal activity. I'd like to see some real tangible conviction here by insiders in the New Year at these levels north of $14.

5. I think Ciena is ahead of itself, so I plan on sitting on my hands. If it gets down to the lower double-digits, I'll revisit the situation. On the flip side, if management offers a stellar outlook on its call that surprises everyone, I'd then take a closer look.

Hey, have a great day!
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No positions in stocks mentioned.

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