Analog Devices, Inc. (ADI): Don’t Buy This Stock Now, but Don’t Ignore It Either

But then, Analog’s communications businesses might continue to be sluggish, at least in the short-term. The company believes that the roll out of faster networks and capacity expansion of network infrastructure will drive its communications business in the long run. However, this will only happen when telecom carriers open their wallets generously, which doesn’t seem to be the case at the moment.

For instance, AT&T Inc. (NYSE:T) lowered its capex estimates for 2014 and 2015 by $2 billion for both years. The telco giant cited the faster roll out of its LTE network and better efficiency in Project Velocity IP as reasons behind the lower spending forecast, but eventually, lower capex plans of a telecom carrier isn’t good news for equipment providers and component suppliers.

Similarly, Verizon Communications Inc. (NYSE:VZ) had stated earlier this year that it would keep spending flat this year as compared to last year due to an uncertain macro environment. Thus, even though the communications market would probably benefit from secular growth trends in the future, the near-term outlook isn’t quite encouraging.

What should you do?

Analog Devices, Inc. (NASDAQ:ADI) has had a pretty good run over the past one year and this has sent its valuation to expensive levels. A trailing P/E of around 21 doesn’t make it attractive even though a dividend yield of 2.90% might be tempting. Thus, it would be prudent for investors to wait for a decent pullback before initiating a long position in Analog Devices as the company looks good for the long run, but it seems expensive right now.

The article Don’t Buy This Stock Now, but Don’t Ignore It Either originally appeared on Fool.com and is written by Harsh Chauhan.

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