Alcatel-Lucent (ALU) may be ready for a sizable move upwards. At its current price level and given its recent momentum, low P/E 5.85, and a high beta of 2.39, ALU could soon jump north of $2.00 and keep on going, perhaps upwards of the $2.56 to $2.75 range. This could happen within a matter of weeks, even if there is initial negative reaction to its upcoming earnings report.
Over the past week, ALU has received several positive upgrades and comments from industry analysts. It has also received a couple of downgrades from a few shortsighted analysts barking for the M&A crowd in hopes of generating big banking and consulting fees for investment bankers.
Last week ALU's stock price topped $2.00 per share for the first time in more than two months. The recent negative news from Juniper Networks (NYSE:JNPR), LM Ericson (NASDAQ:ERIC), and AT&T (NYSE:T) had no significant downward impact on Alcatel-Lucent's stock price.
Everyone knows Europe is in a recession. Recent data from the Institute of International Finance (IIF) confirms this. Everyone knows the telcos drastically cut spending in the fourth quarter. Everyone knows ALU will also have a low visibility earnings quarter when they report on February 10th. Everyone knows the environment for the industry will remain tough for the upcoming year. There is nothing new here. It is all baked into the extremely low price of Alcatel-Lucent's share price.
The good news on the telco side of the story is that AT&T appears to have taken 100% of their charges related to the failed Deutsch Telekom T-Mobile merger in the 4th quarter. No big deal here. AT&T is a cash generating golden cow that spits out dollar bills faster that a signal traveling at 4G, and that is not going to stop anytime soon. A a matter of fact, AT&T generated about 4Gs every 10 minutes based on 2011's $13.5 billion in free cash flow. And that's after having paid out a handsome dividend of $1.76 per share, representing it 28th consecutive annual dividend increase.
I am amazed at how quickly major American powerhouse corporations are written off by the mainstream media. AT&T assets are a critical part of the nations' infrastructure and a major contributor to the defense of our nation. AT&T is hiring like crazy for the defense industry part of its business. Not even the anti-capitalists over at the FCC can take that away from them.
That being said, I am willing to bet AT&T doesn't just sit on the sidelines for the rest of 2012 playing tiddlywinks and sulking over the failed T-Mobile merger. I suspect they will ratchet up the spending and you can bet Alcatel-Lucent will garner its fair share of the dough.
Lucent is also charging full speed ahead into the cloud, rolling out new products a rapid pace. Furthermore, as noted in a recent Paragon Report news release, demand for one of Lucent's core competencies is once again in high demand, that being copper backend solutions to meet the growing capacity demands for data flow.
Speculators and long term investors may wish to snap up shares of ALU while it is still under $2.00 per share. A year from now, the day of penny stock status for this company may well be over.
Disclosure: I am long ALU, T.