3 top networking stocks for 2011

Trends like cloud computing are good news for companies that sell high-tech gear.

By TheStreet Staff Jan 11, 2011 1:21PM

Network © CorbisBy James Rogers, TheStreet


We're only a couple of weeks into 2011, but tech companies Juniper (JNPR), Riverbed (RVBD) and Cisco (CSCO) are already emerging as the networking sector's front runners, analysts say.


Trends such as cloud computing, which delivers a host of services over the Internet, spell good news for companies that sell networking gear, such as switches and routers.


"If you believe in the cloud story and if you believe in Apple (AAPL) moving its base to on-demand and hosting services, you have to buy into the growth of networking," Avi Cohen, an analyst at Avian Securities, told TheStreet.


Service providers are bolstering their networks to cope with the ongoing explosion in data-intensive traffic, which will further affect the companies in this space.

Riverbed and Juniper hit 52-week highs recently, while Cisco, despite its recent problems, remains the dominant player in networking. Let's break them down:


Juniper Networks: This Cisco rival is getting plenty of love on Wall Street, with new networking products expected to drive growth in 2011.


Paul Mansky, an analyst at Canaccord Genuity, said the recent performance of Juniper's EX switches, as well as the forthcoming launch of new data center technology, will help boost sales.


The networking specialist, which posted record third-quarter revenue, also doubled its EX switch sales during the quarter, compared with a year earlier.


"Ever since launching its new network initiative in October 2009, the company has been on a roll," said Charles King, an analyst at tech research firm Pund-IT.

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The new network strategy is focused on mobile Internet and cloud computing. Juniper expects sales to grow more than 20% this fiscal year and countsVerizon (VZ) as a customer.


Riverbed: Riverbed, which sells products for improving traffic over wide-area networks (WANs), is seen as one of the best-positioned networking companies for 2011. The San Francisco company has earned an impressive reputation since it went public in 2006, and its WAN-optimization offerings continue to drive strong sales.


Goldman Sachs (GS) recently raised its Riverbed price target, citing future growth potential, as well the company's attractiveness as a potential acquisition target. There has even been talk that Riverbed could make an attractive acquisition for longstanding partnerHewlett-Packard (HPQ).


"Riverbed remains our favorite way to play this space," said Michael Bauer, an analyst at FBR Capital Markets.


Like Juniper, Riverbed has clinched a major deal with Verizon and also sells its technology to Mitsubishi and satellite specialist Intelsat.


Mansky also likes Riverbed, despite its share price, which has more than tripled in the last 12 months to more than $38. The expected ramp-up of Riverbed's cloud technology over the next few quarters bodes well for the company's performance in the second half of 2011, he added.


Cisco: Cisco sent shockwaves through the tech sector with its less-than-stellar first-quarter results last year, but the company can't be written off. Despite struggling with spending air-pockets with its public-sector customers, the networking behemoth still offers upside potential.


Thanks largely to its recent results, Cisco's shares have plunged almost 16% over the last 12 months -- an attractive entry point into the stock, say some analysts.


"Cisco's challenges in calendar 2010 have been well documented," explained Canaccord Genuity's Mansky. "However, the company is undeniably a leading participant in what we expect to be one of the highest growth markets and geographies over the next several years."


Mansky says high-speed 40- and 100-gigabit Ethernet technologies, seen as key for building clouds and wireless networks, are still in their infancy. AT&T (T), however, has already worked with Cisco on a 100-gigabit Ethernet project, which involved the networking giant's much-hyped CRS-3 router.


The San Jose, Calif., company, which beefed up its service provider strategy at CES last week, is also ramping up its cloud efforts, partnering with BMC (BMC), EMC (EMC) and VMware (VMW).


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