Alcatel-Lucent (ALU) has coal in its stocking this Christmas and shouldn't see any significant upside through December in my estimation. Given the stock's price decline this year, I expect it to be burdened by the weight of more tax loss selling through November and perhaps through December as well.
Alcatel-Lucent shares are off little on the dollar scale, but they're down approximately 62% off their 52-week high, and that'll hit your wallet well enough. So, investors who bought in recently on hopes of a quick turnaround could now be selling to capitalize on tax loss opportunities, or they should be anyway in my estimation. That's because you can reestablish your position after 30 days to avoid wash sales and at the same time take your tax loss. Much of this type of selling occurs earlier than December due to sophisticated investor planning to beat the masses at it to limit capital losses (because a loss is a loss). It also occurs due to the October fiscal year end of many institutional investments funds. However, individuals close their tax year in December, as do many institutions, and so pressure remains on the shares at least through November's close and probably deep into December.
In recent write-ups, we said investors shouldn't expect much from ALU, because the stock had lost its mojo, or technically speaking its alpha catalyst. We added that given our expectations for the broader market, its beta relationship with the market shouldn't be a positive driver either. We even dared to stay negative through the company's most recent earnings report in our article covering the company's near-term outlook. And now we're telling you the stock probably will not celebrate the holidays either, but don't fret. There may be some January effect ahead for ALU, and it may begin at some point in mid-to-late December or in January-proper in this case…
So is this a negative or a positive article? Well, it's a dynamic report, suggesting the stock could see more downside pressure near-term before finding later lift (or support to a floor). So I would advise traders and investors to leave valuation out of their near-term consideration, because ALU will move on capital flows fueled by tax considerations over the next two months, barring unforeseen events. The same is occurring for Alcatel-Lucent peers Cisco Systems (CSCO) and Ericsson (ERIC), but Cisco has a bid of late.
Given the last earnings report disappointment, as we expected, with a reported loss of $0.06 comparing to the analysts' consensus expectation for a penny loss, and as analysts ratchet down 2013 expectations, ALU seems to still be lacking mojo (alpha) longer term. This should push any January effect further out, as investors seek other options for good money. As a result, ALU may even experience a year without a Santa Claus. As I'll be covering ALU regularly moving forward, interested parties may want to follow my column.