Buy Low, Sell High: Alcatel-Lucent Is A Steal At $1

| About: Nokia Corporation (NOK)

Alcatel-Lucent (ALU) has really taken a beating recently. In early May of 2011 the stock was trading at over $6.50 but began to tank to lows from which it still has not recovered. The company is currently trading at just above $1, which is just a few cents above its 52 week low. But the good news is that the company is now outperforming analyst expectations. And rumors of a takeover will probably tempt investors and turn this lull around.

For many investors, telecommunications equipment might sound like a great place to put some cash. As it is, the market is growing in leaps and bounds, and with clients like AT&T (NYSE:T) and Verizon (NYSE:VZ), Alcatel-Lucent is poised to do well, as long as it continues to innovate. It has dominated the wireless and DSL market and is now investing in 3G wireless technology, which could go either way with the introduction of 4G technology recently. The stock is trading so low these days that the company makes a very good takeover candidate, although no one has officially come forward to take advantage of this particular bargain.

Even if rumors of an Alcatel-Lucent takeover are a bit over-stated today, the coming year could be a good one for the company and for investors. One of the biggest factors in its most recent peak and subsequent free fall is the high fixed costs of the Alcatel-Lucent structure. When investments in infrastructure were expected to increase last year, Alcatel-Lucent benefited. But when the revenue streams seemed to dry up, there was nothing companies with high fixed costs could do to manage the imbalance. The company is on its way towards increasing revenue with its recent foray into the 4G technology

The reaction at Alcatel-Lucent has been to change management and address the risky position it is in. By changing its model, the company has reduced its fixed costs and is in a better position to ride out market fluctuations. Restructuring efforts are starting to pay off, as the company managed annual profit last year for the first time since the merger between Alcatel and Lucent back in 2006. Additionally, clients AT&T and Verizon have increased infrastructure spending in 2012.

Alcatel-Lucent is based in France, and while many investors have been fearful of a European meltdown, the markets seem to be weathering the storm as well as anyone can expect. There have been plenty of European stocks that have done quite well, despite the overall low of last fall. Investors that are afraid of Europe have been missing out by being panicked, rather than savvy.

In the end, European stocks are not being outdone by even some of the momentum in the U.S. and investors who stay ahead of this particular trend will probably benefit when the rest of the investing community realizes that there's nothing to be feared from Europe. Maybe this is one reason why analysts have been underestimating Alcatel-Lucent.

Alcatel-Lucent investors should watch competitors closely, because there is fierce competition in the telecommunications infrastructure world. WiMAX 4G technology was a threat that seems to no longer loom, with the recent shift to 4G LTE from Sprint (NYSE:S) and others. But Sprint is not the only 4G threat to the 3G investment Alcatel-Lucent has made. Qualcomm (NASDAQ:QCOM) is perhaps the biggest competition to Alcatel-Lucent with its LTE 4G chipset and huge market share. Sequans Communications (NYSE:SQNS) is also pushing to be out front in the 4G market, and AT&T and Verizon are all pushing LTE networks. The company has recognized it must be a player in the 4G LTE arena and has taken steps to do just that.

At the same time, 3G is still much more widely available and popular. Nokia (NYSE:NOK) has not been able to compete very deeply in the 3G market so far. 3G wireless technology represents about 30% of total revenues. Wireline operations represent over 36% of revenue, and the company also offers a broadband product that is widely available and very popular as consumers continue to increase their activities - getting cable, a high speed internet connection, and VoIP all at once takes serious connectivity. This technology is what has AT&T and Verizon coming back again and again for Alcatel-Lucent products. This momentum will continue and Alcatel-Lucent will benefit nicely going forward.

Cisco Systems (NASDAQ:CSCO) is a major competitor in the broadband field. If Cisco can make routers attractive again, Alcatel-Lucent risks losing market share to a cheaper and simpler technology installation process. But it appears that Cisco is focused more on software for the cloud computing market - which is a plus to Alcatel-Lucent. The bottom line at Alcatel-Lucent still puts the company in a position to do well over the coming year, no matter what the competition has up its sleeve.

Alcatel-Lucent has one major strength going for it that its competitors cannot claim. Presently, you can buy Alcatel-Lucent stock at a considerably lower price than the projected value. This stock is going to move up and move up fast. I expect the stock to double of more in the first 6 months of 2013, as concerns in Europe quiet down.

Alcatel-Lucent's balanced strategy of mixing wireless and wireline operations relatively evenly, puts it in the position of being able to absorb the volatility of the market it is in. I am predicting that Alcatel-Lucent has learned its lesson and is now making the changes that will put the company out in front. And at $1 per share, it is a low risk that can result in huge rewards. This is a stock that scares a lot of people, but the savvy investor knows that the market looks good for Alcatel-Lucent going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.