Infinera (NASDAQ: INFN) Stock is a Bargain 5G Infrastructure Play

Optical network systems provider Infinera (NASDAQ: INFN) shares have been relatively confined to a $10 price range for nearly the past five years. The COVID-19 pandemic plunged shares to multi-year lows before staging a rally with the S&P 500 index (NYSEARCA: SPY). While the COVID-19 pandemic has peaked and regions are restarting as isolation mandates get lifted, the rollout of global 5G networks continues to press forward. The U.S. ban on Chinese telecommunications equipment maker Huawei is also being adopted by the U.K. This leaves the door wide open for U.S. based 5G networkers to fill the void, which could be a windfall gamechanger that could lift Infinera out of its decade long price range. Furthermore, a rare breakout pattern known as a seed wave may be forming which could breakout shares into the teens. Investors should monitor the price trajectories and consider scaling in at opportunistic pullback levels.  

Q1 2020 Earnings Release

Infinera reported its Q1 2020 earnings a loss of (-$0.27) per share missing consensus analyst estimates of (-$0.18) by (–$0.09). Revenues grew to $330.27 versus $318.81 estimates. The Company provided Q2 revenue guidance between $309 to $329 million compared to $326.50 analyst estimates. The stay and home mandates have fueled an insatiable demand for bandwidth capacity from telework to streaming entertainment uses. The bar is set low for their Q2 2020 earnings due out in August 2020. Investors may want to get positioned earlier to have the opportunity to sell-the-news into the earnings run up or hold the position through results with the ability to scale in more shares if they rug pull.

Long-Haul and Short-Range Vertical Integration

Infinera completed its acquisition of Coriant to bolster its offerings and transform into a true vertically integrated optical network systems manufacturer. Originally Infinera garnered most of its revenues from long-haul wave division multiplexing systems enabling internet service providers (ISPs) to bolster bandwidth capacity without the major expense of laying more fiber. Coriant accommodates short-range like DCI and Metro WDM systems. Together they cover the complete cycle to conveniently address capacity needs throughout the pandemic and bolsters 5G capacity.

Huawei’s Loss is Infinera’s Gain

The U.S. has implemented an ongoing ban on Huawei products due to national security concerns. The ban mandate deadlines continue to roll forward. It’s arguably being used for leverage in ongoing China trade talks. However, the pace of 5G rollout continues forward and Huawei’s loss is Infinera, Nokia (NYSE: NOK) and LM Ericsson’s (NASDAQ: ERIC) gain as smaller players fill the void. The U.K. has also decided to implement bans on Huawei products further opening up opportunities for the smaller players.

Price Trajectories

Using the rifle charts on a monthly and weekly frame provides a broader view of the landscape for INFN stock. The monthly rifle chart displays a make or break with a bullish stochastic versus a moving average downtrend. However, the ace up the sleeve if the monthly seed wave pattern that triggers above the $8.61 Fibonacci (fib) level.  The weekly stochastic crossed up so investors should consider opportunistic pullback entry levels at the $5.51 market structure low (MSL) , $5.11 fib and $4.62 super fib. If no pullback entries are provided, then keep an eye on the $8.61 fib breakout to trigger the monthly seed wave formation. A seed wave is composed of two higher consecutive MSLs. Ideally a MSL, then a market structure high and a higher MSL. This refers to the second MSL being higher than the first MSL. By connecting the first MSL to the high of the MSH, this produces three fib extensions which are the 1.27, 1.414 and 1.618 fibs also referred to a potential (price) reversal zones. These are meant to be profit targets as well as potential short entry points for nimble traders. The upside monthly seed wave trajectories are at $9.82 (PRZ1 and 1.27 fib), $10.64 (PRZ2 and 1.414 fib) and $11.72 (PRZ3 and the 1.618 fib). Usually the 1.618 is the toughest target to hit and often serves as a near-term price top making it a viable short-sell area for experienced and nimble day traders. Longer-term investors can also take advantage of the PRZ3 level by writing covered calls against their position if the stock reaches that level. Short selling is super risky so only the most seasoned traders should even consider it. Sympathy trades can be found with other optical network providers including Ciena (NASDAQ: CIEN) and Finisar (NASDAQ: FNSR) .