Stock Market Corrections Are Healthy

08/24/2015 10:00 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

The key to being a successful long-term investor is by identifying companies levered to industries that will see above-average growth for few years to come, says Michael Berger, of Technical420.com, who thinks one of the industries that will continue to see growth is data centers.

Global growth concerns continue to fuel the sell-off on Wall Street and investors are franticly searching for investment opportunities. On Friday, the Dow industrials was down 530.94 points, putting it in correction territory, as defined by a 10% decline from a recent high. The Dow is 10.1% from its record close on May 19.

The Dow's more than 1,000-point drop last week was the largest weekly drop since the week that ended on October 10, 2008. The 3.2% drop in the S&P 500 on Friday culminated the worst week for United States stocks since 2011 and put the index 7.5% below its recent peak on May 21.

It's About Time

This week looks less like a catastrophe in the making and more like a much-needed breather because certain markets have been starting to look a little bubbly. Sure, it's not fun, but it's just part of the markets.

Stock market corrections are healthy and create great opportunities for investors. History has shown that being a buyer in a correction has been far more profitable for investors.

Weakness Creates Opportunity

During these times of turmoil, investors can find long-term value by being selective. The key to being a successful long-term investor is by identifying companies levered to industries that will see above-average growth for few years to come. One of the industries that will continue to see growth is data centers.

Applied Micro Circuits Corporation (AMCC) provides solutions for next-generation cloud infrastructure and data centers. AMCC also provides connectivity products for communication equipment in the United States.

AMCC has fallen by more than 30% from its high on June 19 and the company's growth prospects are underappreciated by investors. AMCC has a first mover advantage over its competitors and is well positioned to grab the lion's share of the ARM-based server market in the near term.

Applied Optoelectronics (AAOI) offers investors exposure to favorable trends in data center spending. AAOI designs and manufactures optical communications products for the data center, cable television, and fiber-to-the-home markets. During 2015, AAOI is up 77%, but shares have come down from their highs and are down more than 10% during the last two weeks.

In early August, AAOI reported second quarter operating results and surpassed Wall Street earnings estimates. The emergence of 100G products in late 2015 presents an opportunity for AAOI to diversify its customer base. Although there is significant competition in the data center optics market; Applied Optoelectronics' vertical integration offers a strategic advantage.

Michael Berger, Founder and President, Technical420.com

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