Infinera Corp. (INFN)

I'm picking INFN based on my search for companies set to profit from macro-trends. In INFN's case, the trend is for increasing need for network and fiber-optic capacity. INFN designs, manufactures and markets disruptive technology that allows for significant increases in this capacity, while at the same time reducing the amount of moving parts, space, and energy consumption. That's about as far as I feel qualified to get into INFN's technology.

INFN has extremely powerful fundamentals for such a young company. As it has received a great deal of funding from venture capital, management, and its IPO, the company has $3 million in cash and no debt. It achieved $3 million in free cash flow in 2007, in spite of significant capital expenditures supporting growth. INFN's patent portfolio represents a moat, although the weakest kind. While its youth makes it difficult to analyze INFN's long-term fundamental growth, its ability to post positive numbers in EPS and cash flow over recent quarters, coupled with its strong ability to grow shareholder equity, align with the thesis outlined above that its development of disruptive technology makes it a candidate for strong growth.

Valuation: This company is difficult for me to value with my simple valuation techniques. Just about any estimate of future earnings or cash flow that I'd be able to make would be very speculative. That's what makes this a pretty speculative investment.

Risk Factors: Difficult valuation is one. Failure of Infinera's technology to work its way into the mainstream of fiber-optic service providers is another big risk (though Deutsche Telecom's recent purchase of INFN's product leads me to be optimstic on that front). Lastly, I expect a great deal of volatility with this issue as it trades at a high p/e based on what I believe to be well-founded expectations of future growth. But INFN's share price is going to be highly sensitive to marked gyrations and investors' view of speculative returns.

INFN is a fairly speculative investment that should be watched closely. I am not using a tight stop loss on this trade, but I will watch the company's performance carefully, as the underlying business and its ability to compete over the long haul is the risk factor here.