Two hot computer networking stocks

July 9, 2018 03:26 PM

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 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 (top 16%). That is exceptional. This top Zacks industry rank gets fresh support from seven positive earnings estimate revisions and only two negative revisions across the companies. This niche is growing in vitality within the information technology ecosystem. 

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

The 2018 year-to-date 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 as hard in this sector, if at all.

Traders and retail investors often fear what they don’t know. With that in mind let’s look at the technology behind the Computer Networking sector.

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.  Two successful Computer Networking companies with strong business models worth exploring are Netgear (NTGR) and NetScout Systems (NTCT): 

Netgear: This $1.7 billion market cap stock holds a Zacks #1 (STRONG BUY) rank and also holds a desirable long-term Zacks VGM score of B.  

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

About the Author

John Blank, Zacks Investment Research