Sector gets wired

  • Communications equipment stocks: Hottest area of tech this year
  • Many stocks in this industry are up 30% or more
  • CSCO may have a unique position in the industry

Since tech stocks returned from their brief purgatory of underperformance to return to the top of the market heap, the industry propelling the sector forward more than any other has been communications equipment—those companies that specialize in the under-the-hood tech that makes today’s digital universe go.

True, many of these companies aren’t exactly household names, but as of yesterday the group was up around 22% on the year, leading the S&P 500 (SPX) tech sector by 3% and the SPX itself by nearly 10%. That should at least grab the attention of some traders who weren’t already aware of the action in this corner of the market.

Ubiquiti Networks (UBTN), BOS Better Online Solutions (BOSC), and Audiocodes (AUDC), 12/24/18–3/26/19. Price chart, computer equipment stocks.Leading the tech sector.

Source: Power E*TRADE

The chart above shows three high-flying names in this space—Ubiquiti Networks (UBNT), BOS Better Online Solutions (BOSC), and Audiocodes (AUDC)—are up 30% or more from their December lows, even though all three stocks have either pulled back or moved sideways since hitting year-to-date highs. (By the way, notice the tight trading range UBNT has been in for the past few weeks…something breakout traders may have on their radar?)

One name in this industry that is a household name (at least among traders) is Cisco (CSCO), which pulled back a little in recent days after hitting its highest high since December 2000:

Cisco (CSCO), 8/28/18–3/26/19. Cisco (CSCO) price chart. Leading the leaders.

Source: Power E*TRADE

CSCO is up around 23% on the year and 32% from its December low. The company has been around since the go-go days of the original 1990s tech boom, which went bust in 2000 and dropped CSCO shares from above $80 to around $8 in 2002.

That was then, this is now. Since those days of simply being the best-known internet router manufacturer, the company has expanded into all things networking and communications—according to one analysis, its nearest competitor generates only around 10% of CSCO’s annual revenue.1 (The company even recently launched a venture-capital firm.2)  

Although the size of the recent rally may lead some longs to think “hmmm, maybe I should take some profits,” that doesn’t necessarily mean the rally is kaput. One recent study cited the economic expansion occurring in the communications equipment industry, and specifically the absence of short-selling interest in CSCO shares3—in other words, it didn’t look like short sellers were targeting the stock.

That’s not to say that deeper pullbacks than the ones that have appeared in CSCO so far this year won’t happen—they will, at some point—but if tech continues to lead the market, and communications equipment continues to lead tech, bullish traders may continue to view dips in CSCO and its compatriots as opportunities rather than setbacks.

Market Mover Update: May WTI crude oil futures (CLK9) reversed their recent pullback amid signals from Russia that it would follow through on its pledges to cut crude production.4 The market rallied more than 1.5% and pushed above $60/barrel intraday.

Today’s numbers (all times ET): International Trade (8:30 a.m.), Petroleum Status Report 10:30 a.m.).

Today’s earnings include: At Home Group (HOME), Lennar (LEN), Paychex (PAYX), Five Below (FIVE), Lululemon athletica (LULU), PVH (PVH), RH (RH).


Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.

1 Cisco's Valuation Doesn't Reflect the Advantages That Come From Its Scale. 2/19/19.

2 Silicon Valley Business Journal. Cisco launches early-stage investment firm headed by former NEA partner Jon Sakoda. 3/26/19.

3 HIS Markit. See what the IHS Markit Score report has to say about Cisco Systems Inc. 3/26/19.

4 Oil Rebounds as Russia Signals Its Commitment to Output Cuts. 3/26/19.

What to read next...

High put-call ratio and intraday rally present interesting scenario for short-term traders.

A Friday yield-curve inversion takes some of the starch out of a Fed-fueled rally.

Wednesday’s Fed announcement hit bank shares but sent homebuilders soaring.

Looking to expand your financial knowledge?