Anyone who played ball during the dot.com bubble most likely owned a share or two of Lucent Technologies stock. Many made money. Many got crushed.
Now flying under the French banner of Alcatel-Lucent (ALU), Lucent Technologies has suffered not only an image problem, but real world mismanagement problems. However, there is much in the past that many in the investment world may be overlooking, perhaps due to herd mentality, or maybe the short memory that can grow with time as a once stellar American corporation takes a holiday in France.
Remember Bell Labs—birth place of radio astronomy, the transistor, and the UNIX operating system? Seven Nobel Prize winners conducted their scientific research there, with the latest being Willard S. Boyle and George E. Smith, who in 2009 shared the prize for physics with their discovery of the fractional quantum Hall effect. Bell Labs is still running strong and turning out amazing research. Most recently they have been working on revolutionary antennae for the wireless communications delivery.
The point is Alcatel-Lucent is an incredible scientific enterprise with a vault full of useful patents that seems to be overlooked by Wall Street. I suspect much of Lucent’s image problem has much to do with Wall Street bias against foreign-based ownership and the conservative business practices of the French as it does with “concerns” over liquidity. Investors here in the states need to keep in mind that it is much more difficult for a company to file bankruptcy in France were jobs are sacrosanct. In my view, the conservative should be modified to conservator as in the French have conserved Lucent as a company that once again shall bloom as Europe sorts out its economic ills.
Goldman Sachs (GS) continues to hold 7.5 million shares and Citigroup (C) 12.9 million. Have you ever tried betting against Goldman Sachs and come out on top? Goldman recently resumed coverage of Alcatel-Lucent with a neutral rating. Is Goldman taking a second generation look at this company?
Alcatel-Lucent is currently followed by a dozen or so analysts that have stock price expectations ranging from 3-9 dollars per share. What is interesting to note is that the high-side earnings estimates were creeping up fairly high prior to the European crisis now under way. From the current 2011 delivery of .33 per share, 2012 projections to the high side had approached .48 per share at the beginning of this year, but are now revised down to around .32 per share in line with current recession expectations in Europe. For the past four quarters Alcatel Lucent has delivered earnings surprises as high as 150%.
Beyond a projected recession, Alcatel-Lucent’s balance sheet is finally showing signs of improvement. Lucent is now sitting on $4.9 billion in cash with debt pared to $5.95 billion. Earnings growth is expected to clip along at a healthy 10% over the next five years on the conservative side. This could well be much higher considering management’s commitment to cost cutting, productivity and profit delivery.
As recently noted in Telecompaper.com, a telecom industry research group, pressure is being applied to Alcatel-Lucent to replace its CEO:
Alcatel-Lucent's CEO Ben Verwaayen is under pressure from investors to step down after the company's recent profit warning, the Wall Street Journal reports. According to people familiar with the matter, Alcatel-Lucent officials have informally approached potential candidates as successors.
Wall Street’s demands aside, Lucent is poised for continued growth in China, and Latin America. Growth in Mexico was $148% and fiber optics growth in China was up 60%. With a bit of luck and a European turnaround, which may come sooner than expected when the IMF and Ben Bernanke finally backstop Europe with more American tax dollars, Alcatel-Lucent could be off to the races.
This stock is not for the cautious investor, but for the speculator with money to burn and willing to lose 100% of his investment.
But then again, one can fly to Vegas to gamble, or one can go to Wall Street. Both serve French Wine on occasion.
Disclaimer: This is a pure speculative play. Investors unwilling to lose 100% of their money should steer clear. Just ask folks that bought American Airlines last week at $1.62 per share. Their shares are now worth .23 per share.
Disclosure: I am long ALU.