Sector Snap: Optical Equipment Makers

"We recognize that caution is warranted in 2008 given limited visibility, macro uncertainty, and a history of choppy performance from optical component companies," Dubinsky said in a note to clients. "Still, we are positive from an investment perspective as the risk/reward for most optics stocks is very favorable."

Dubinsky upgraded shares of Optium Corp. to "Outperform" from "Perform" with a $10 price target, and said 2008 will be a strong year based on product cycle momentum.

"Optium is one of the more controversial stories in the optics space with investors cautious on both long-term strategy and near-term demand," he said.

Shares of Optium rose $1.48, or 24.5 percent, to $7.53 in afternoon trading.

Dubinsky downgraded Oplink Communications Inc. to "Perform" from "Outperform" and said the stock will remain in its current range until margin issues and the company's growth profile become clear.

Oplink's success will depend on how well it integrates OCP, which is bought last November, he said.

"Though these issues should be resolved exiting the year and management is likely conservative with its projections, near-term results may prove volatile," Dubinsky said in a client note.

Shares of Oplink fell $1.49, or 11.6 percent, to $11.39.

EXFO Electro Optical Engineering Inc. was downgraded to "Perform" from "Outperform" by Dubinsky, who said the company continues to have currency problems.