Alcatel Lucent (ALU) has been hit hard over the last few years with a stock in continuous decline. Has the stock found its bottom now? With a stock price hovering just over $1.50 investors ask whether ALU is just waiting to sink down even lower and hit publicized target prices of $1 (RBC capital markets) or is setting itself up for a massive rebound making the stock a multi-bagger.
The pricing of the stock still indicates that investors are overwhelmingly bearish about the stock. At $1.50 investors price in the ultimate failure of the company as a going concern.
The chart reveals a completing shoulder/head chart combination which is a bullish signal. In addition, ALU was able to double-test and confirm its bottom just below $1.50 which was first tested in December of 2011. Investors who are trading on charts might find this stock very interesting on a technical level.
But even value investors should have a closer look at the company. ALU still exposes significant value in patents and is a driver of innovation. The market continues to discount the value inherent in the company and places too much weight on fixable operating problems.
Contrarian investors who are looking for a great potential turnaround play should consider ALU. The chart looks pretty nasty over a period of 2 or more years which makes it even more interesting.
I have added to my existing ALU position over the last days averaging down to $1.55. Given the extreme amount of pessimism for the stock, my experience with distressed equity investments has shown that a stock priced that low can easily double or triple once sentiment changes. With a P/E ratio of just over two the company remains dirt cheap. I have a short-term price target of $2.50 on the stock and would not be surprised if the stock hits $5 a share or higher once management delivers on operating performance.
Disclosure: I am long ALU.