Weak China GDP, Busy China Cell Phones

Once again, it is that time of the month to play the top-down Zacks Industry Rank Analysis (IRA) game. This series of publications helps stock investors identify underlying industry trends that are hot.

This month, I noted a big Industry group -- COMPUTER NETWORKS -- is killing it!

The Zacks Industry Rank is #17 out of 265 industries this week. Over the last 2 weeks alone, 14 of 17 companies have attained a Zacks #1 or #2 rank. That is special. There have been 11 positive earnings estimate revisions in the last week, versus only 5 downgrades. The average positive EPS revision is +4%.

When an industry rank is in the top 10%, that means the chance of finding an outperforming stock inside is very high over the next 1 to 3 months.

Other industries at the top, all from the IT space, tell the full story of what is happening. Semi Fab Foundries are hot. Semiconductor-Communications are hot. Semiconductor-Radio Frequencies are hot.

What's Going On?

One trend that clearly supports this IT industry deserves special mention. Mainland Chinese are buying more and more cell phones and wireless packages.

China Telecom (NYSE:CHA) and China Mobile (NYSE:CHL) are at Zacks #1 Ranks this week. This upward earnings estimate action is signaling an upward spending journey. That strong IT consumer journey is working against a China seeing weaker revenue growth elsewhere.

But not in cell phones!

Take a look at these Mid-Cap Growth companies. These two U.S. companies are assisted by the overall global lift coming to IT industries -- centered in more reliable wireless networks and very high-speed Internet use.

NetScout Systems (NASDAQ:NTCT) is a currently a Zacks #1 Rank stock.

This is a Mid-Cap Growth stock. EPS looks to grow +19% in 2015 and +17% in 2016, led up by underlying strength in revenue growth. Revenues look to grow +14% in 2015 and +12% in 2016. That speaks to a well-positioned business model.

The last 10 quarters of EPS surprises have all been positive. They upside surprise vary from 3% to 42%, with 7 out of 10 consecutive quarterly surprise in double-digits.

The company designs, develops and manufactures, markets and supports a family of integrated products that enable optimization of the performance and cost management of complex, high-speed networks. This includes their ability to deliver critical business applications and content to end-users efficiently.

NetScout nGenius and Sniffer solutions are deployed at more than 20,000 of the world’s largest enterprises, government agencies and more than 165 service providers, on over one million network segments to assure the network, applications and service delivery to their users and customers.

Valuation is not cheap. The Price/Sales ratio is high at 3.7. The PEG ratio is 1.7, which is OK. The forward P/E is a high 25. In other words, you will pay up for growth, and need to watch out for a short play on this stock.

Infinera Corp. (NASDAQ:INFN) is currently a Zacks #1 Rank stock.

This is another Mid-Cap Growth stock. EPS looks to grow +31% in 2015 and +78% in 2016, led by underlying strength in revenue growth. Revenues look to grow +15% in 2015 and +15% in 2016. Again, that speaks to a well-positioned business model.

The last 10 quarters of EPS surprises have all been positive. The upside has been huge, with 3 of 10 beats +200%, +300% and +400%.

Infinera provides Digital Optical Networking systems to telecom systems carriers, cable operators and other service providers worldwide. The company’s large-scale photonic integrated circuit incorporates hundred Gigabits per second.

It can transmit and receive with capacity and functionality that puts more than 60 discrete optical components into a pair of indium phosphide chips.

Valuation is not cheap here either. The forward P/E is whopping 73. The Price to Sales is 3.3. The PEG ratio is very high at 3.16. At $17, I would definitely wait for a pullback to buy.

Original post