After last week's rally, all three major indices closed in red on Monday as we head into the earnings season. Dow Jones led the loss with 0.38% decline, which is followed by S&P 500's 0.31% drop. Nasdaq held better with a slightly decrease of 0.09%. DIA, SPY, and QQQ still all closed above their 50-day and 200-day MAs. Healthcare was the only sector closed higher with 0.36% increase. Utilities sector led the loss with 0.93% drop.
The market sentiment is driven by greed now with Fear & Greed Index at 82, which did not change from the previous trading day. For NYSE, there were 1,380 stocks advanced, 1,651 stocks declined and 110 stocks stayed unchanged. For Nasdaq, 1,066 stocks advanced, 1,436 stocks declined and 75 stocks remained unchanged. In the following, top stock had been identified through our daily options scanning process, with the scanning criteria where the daily call volume ratio was above 3.00 (3x of the average call volume) with a call volume above 10,000.
Average Call Volume
Daily Volume Ratio
Alcatel-Lucent, S. A. (ALU)
Source: Schaeffer's Research
Alcatel-Lucent, S. A.
Alcatel-Lucent, a France based company, is a provider of telecommunications technology and services, which also engages in mobile, fixed, Internet Protocol and optics technologies, applications and services.
Alcatel-Lucent will be showing 12 fresh cloud-based service concepts made by its ng Connect Program aimed at exploding innovation and sparking the fresh connected user experience, counting interactive digital signage platforms featuring cloud-based services for public places and retail shopping, at this year's CES, January 8-11 in Las Vegas, as reported by SBWire. As stated by Alcatel-Lucent, the ng Connect Program is a multi-industry ecosystem committed to the creation of the next generation connected user experience. The program is made up of over 190 Contributing and Associate member firms counting leading network, consumer electronics, application and content sources.
On Dec. 14, 2012, ALU announced it entered into commitments with Credit Suisse AG and Goldman Sachs Bank USA for USD 2.119 billion (Euro 1.615 billion) in senior secured credit facilities. As reported,
"the planned debt injection clearly eliminates near-term tail risk to the equity and should allow Alcatel to operate as a going concern until at least 2015. We now estimate positive liquidity of USD 2.10 billion (€1.6 bn in 2014, given refinancing and asset disposals) vs. our prior estimate of a USD 393 mn (€300 mn) shortfall. We still view Alcatel as subscale in a fragmented market and therefore apply a 4th quartile designation on our Industry Positioning framework. Our expectations for cash returns remain low, even if momentum for US Telco capex may provide a 1H13 tailwind."
Analysts' Calls and Earnings Estimates
On Jan. 7, 2013, Goldman Sach's Simon Schafer removed ALU from the Conviction List as a sell. Goldman's rating on ALU is still a "sell", but the stock had soared around 48% since Goldman's last recommendation on Oct. 5. Interestingly, the surge was prompted in large part because Goldman's lifeline to ALU last month. The analyst said,
"In our view outperformance has been driven by upside to capex intentions of US Telcos, granular disclosure on ALU's patent portfolio and the announcement of a planned significant change in Alcatel's capital structure, mitigating tail risk. We remove ALUA.PA and ALU from the Conviction List but they remain Sell given the group's Q4 industry positioning and returns."
On Jan. 3, 2013, Credit Suisse raised its rating on ALU from Underperform to Neural, boosting its price target from USD 0.92 (€0.70) up to USD 1.64 (€1.25). The analyst at Credit Suisse commented,
"Although we expect the company to burn cash in 2013/2014, starting to generate cash in 2015, we still believe that it will be able to maintain gross cash of [USD 5.29 billion (€4 billion) this year, USD 4.33 billion (€3.3 billion) next year and USD 3.02 billion (€2.3 billion) in 2015], thereby creating a viable business entity long term."
Analysts, on average, are expecting an EPS of -0.18 with revenue of 18.81B for the current 2012 fiscal year. For 2013, analysts are estimating an EPS of -0.07, an improvement compared to 2012, with revenue of 18.65B, which is 0.80% less than 2013, as seen from the table below.
Source: Yahoo Finance!
Key Stats and Valuation
ALU has an enterprise value of $3.81B with a market cap of $3.92B. ALU has a total cash of $6.09B with an operating cash flow of -124.29M, ttm, and a levered free cash flow of 656.25M, ttm. ALU currently has a book value of 1.91 per share, mrq. By using the data obtained from Morningstar, ALU's key stats will be compared to its peers in the communication equipment industry, including Cisco Systems Inc. (CSCO) and Nokia Oyj (NOK). ALU has lower revenue growth (3 year average) of -3.4, comparing to the industry average of 1.4. ALU has lower operating margin of -4.7%, ttm, and higher net margin of 6.1%, ttm, as compared to the industry averages of 17.0% and 5.3%, ttm, respectively. ALU generates higher ROE of 36.3, as compared to the average of 7.3.
ALU's P/B of 1.4 and P/S of 0.2 are lower than the industry averages of 2.1 and 1.6. The 5 year averages P/B and P/S for ALU are 1.1 and 0.2. ALU has a PEG ratio (5 year expected) of 0.35.
ALU closed at $1.73 with 5.49% gain on Monday. The volume of 41.20M was 89.25% more than the 30 day average volume of 21.77M. ALU has a high beta of 2.34. ALU had been trading in the range of $0.91-$2.65 in the past 52 weeks. The MACD (12, 26, 9) indicator had been showing a bullish sign since Nov. 26, 2012 and the MACD difference continued to diverge. The momentum indicator, RSI (14), is showing a strong bullish momentum and is in the over-bought territory at 81.50. ALU is currently trading above its 200-day MA of $1.38 and 50-day MA of $1.18. ALU had also broken through its R2 resistance at $1.72 on Monday, as seen from the chart below. ALU is very bullish in the short-term, technically.
Unusual Call Activities
Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. The most active call was Jan. 18, 2013 call at the strike price of $1.00 with a volume of 21,019 and an open interest of 26,187. The second most active call was Jan 17, 2014 call at the strike price of $2.00 with a volume of 6,729 and an open interest of 12,746. The implied volatility is 63.7, and the chance of breakeven is 21.34. The historical volatility for ALU is 68.58 for 1 month, 65.21 for 3 months, and 62.00 for 1 year.
ALU is a high beta stock with high volatilities and is not suitable for conservative investors who are seeking for stable, consistent returns. For aggressive, bullish options traders, trading near-term, in-the-money call will yield a good reward/risk ratio while minimizing the time decay effect.
Note: All numbers/prices are quoted from the closing of January 7, 2013 with the data provided from Barron's, MorningStar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo! Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.