Investors with an appetite for returns should consider getting a little more fiber into their portfolios — particularly shares of firms that sell optical fiber networking equipment.  Optical components may sound about as tasty as a bowl of dry bran flakes, but the potential upside is pretty sweet.

Consider the fact that three companies in the sector – Ciena (Nasdaq:CIEN), JDS Uniphase (Nasdaq:JDSU) and Finisar (Nasdaq:FNSR) have risen an average of 120% since their 52-week lows last fall.  Three others, Oclaro (Nasdaq:OCLR), Oplink (Nasdaq:OPLK) and Infinera (Nasdaq:INFN) are up an average of 49% over last year’s lows.

Seeing gold in these names may seem to be a bold boast – particularly since these are the same companies whose share prices were kicked in the teeth a month ago over trouble selling out their product inventories. That forced Oclaro, Finisar and others to revise their quarterly revenue estimates downward.  Pair that news with the fact optical networking gear sales went nuts last year, and it makes sense why some investors may think these stocks’ run is done.

But that move was, pardon the pun, short-sighted.  Carriers need to buy more — and more advanced — fiber optic gear in order to support aggressive data transmission requirements and the proliferation of 3G wireless networks. 

So even though their customers are sitting on a fair amount of unused product now, these purchase delays are less about excess inventory and more about customers waiting a tad longer to outfit their networks with the hottest technology available.

Here are a few factors that signal strong growth potential for optical component firms:  

• Despite uncertainty in the short term, the sector is well-positioned for strong growth between 2011 and 2015, a new forecast from the research firm LightCounting says.   
• Since so-called “passive” optical component sales grew at a higher rate than other components last year, a new cycle of carrier network upgrades may be starting now.
• The industry is bouncing back from the recession of 2008-09. Carrier demand for optical fiber components will be driven by the need to link together networks of networks – efficiently and cost-effectively.
• Carriers must have these components in order to keep pace with the surge in data traffic over both traditional and wireless networks.
• As broadband networks continue to grow bigger and faster, carriers will have to upgrade their existing optical fiber components.  Never underestimate the need for speed: sales of 40Gbps (gigabit/second) components and modules have started this year strong; 100Gbps optics likely will rise sharply by late 2011.

Bottom Line: In today’s data-hungry culture, all the world’s a network and all the carriers are chasing bandwidth. Since optical fiber equipment makes massive amounts of data traffic move quickly through both traditional and wireless networks, it’s easy to see why analysts see the market nearly doubling to $22.1 billion in 2014.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.