Legendary investor Ben Graham once said that some stocks can be likened to cigar butts lying on the ground. That in some circumstances there could be a few good puffs (or in the case of a stock, a few points) left in them, in spite of what the person who discarded them might have thought.

With that in mind, as part five of my five part running series (click to read part 1, part 2, part 3, or part 4), I am reviewing two more beaten down stocks that I think have some serious upside, much like the type of cigar Graham was referring to.

Let's get down to business:

Ciena (CIEN): Ciena provides communications equipment and software to telecommunications and cable service providers. For the layman, this means the company makes the products that allow your telco or cable carrier to provide us with high speed broadband and DSL service.

Obviously, when these services really took off among the public five or six years ago, the stock took off like a rocket ship. But the outlook for telco spending slowed in the early 2000s. And as a result, the shares went from being a Wall Street darling, at $50 a share, to what some perceive as a "has been", just north of $4 a share.

But I think the stock deserves a series look at this price. Here's why: First off, telcos are spending a great deal of money now to upgrade, as well to as develop more cost effective networks. And, as a result, Ciena is seeing the benefit.

As evidence, in its second fiscal quarter ended April 30, the company reported an 8.9% sequential increase in revenue over Q1, and a 26.3% increase over the comparable period last year. Thanks to a number of new, higher margin products and services in its arsenal, management is forecasting another 7% to 10% sequential revenue growth in the third quarter.

Beyond that, the company has about $1.63 in cash per share, and ample cash flow to ramp up production, and meet the growing demand within the industry. That's good news. Another factor that I think could have a positive influence on the stock is that Wall Street analysts are starting to pay more attention to its earnings announcements.

In fact, since its second quarter earnings release on June 1st, Goldman Sachs upgraded the stock from "In-line" to "Outperform." Susquehanna Financial upgraded the shares from "Negative" to "Neutral". JP Morgan upped the stock to "Neutral" from " underweight", and Morgan Keegan upgraded from "Under Perform" to "Market Perform." In my opinion if the company is able to grow at the 7% sequential clip that its suggesting in Q3, it will earn a great deal more trust among the investment community, and we could see even more research upgrades.

As things stand now, Wall Street analysts think the company will earn 1 cent a share in the fiscal year ending October 2006, and 18 cents a share in 2007. But I think these estimates are way to low, and that management is likely to guide the consensus estimates higher from here. On positive news flow alone, I think the shares could trade 20% or 30% higher in the coming year.

3Com (COMS): For those unaware, 3Com makes a variety of local area networking (LAN) products such as switches and routers, as well as platforms and phones for Voice over Internet Protocol (VOIP).

In late 2000, 3Com peaked in a big way. That's when the demand for networking products went down the tubes. It's also when the Palm spin-off, and all of the hype that went along with it stopped. Since that time, a lackluster macroeconomic environment, lack of new telco spending, and a lack of new product offerings caused the stock to drop from $100, to its current level of just under $5.

But I see hope. The company has a terrific balance sheet, with about $1.80 in cash and equivalents, and no debt. And if Voice over the Internet takes off like I think it can, I expect the company to receive a great deal more of attention from the analyst community going forward.

As things stand right now, the Street is expecting the company to lose about 2 cents a share for the fiscal year ending May 2007. That's nothing to really celebrate over, for sure. But it would be a marked improvement over the 27 cent a share loss which is expected in fiscal 2006, which is expected to be released tomorrow, Wednesday, June 27th.

To be clear, I don't think it makes sense to jump in ahead of the earnings. I would be more interested in what management says about its future. Specifically, its expected product mix and gross margins going forward, as well as other cost reduction strategies it may implement to get the company back to profitability.

From these levels, I don't see much downside to the stock. At present, Wall Street is giving the future earnings potential of the company very little value. And if management can effectively outline a path to profitability for investors, I suspect the stock could realistically double from here. Keep in mind that once the stock is able to hold above the $5 level, it will get much more sponsorship from big name Wall Street companies, who otherwise avoid low priced stocks.

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