I have recently invested in ALU and my Uncle wanted to understand why so below I have posted the letter I wrote to him.
For a little background on me, I was a Finance major in college, but I don't use much of what I've learned in evaluating stocks. I look more at the speculative side of things, not the fundamentals. I invest in companies that are hurting at the moment but are potentially set for a turn-around in 1-3 years.
This has worked for me fairly well so far (I have never sold a stock for a loss and when looking at both realized and unrealized gains, I have more than doubled my net worth, which is a huge relief since I used my left over college loans as seed money when I first started investing!) but I do not for a minute believe that it is the best system. Because of that, I am always more than happy to justify my actions when asked, but I never recommend people to invest as I do. However, there is something to be said about the effects emotion/perception and outside market factors have on these "speculative" stocks...
So here it is, let me know your thoughts!
Just to warn you, this is a high risk stock. I believe it can double over the next two years, but I think it is going to be a bumpy road until then.
For starters here is an article that gives a good background on some of the technologies that ALU has developed. Once they can get the ball rolling, I feel as though that this will be a major source of their revenue and can turn the stock around. http://seekingalpha.com/article/1311541-alcatel-lucent-buys-time-so-give-it-time?source=yahoo
Here is another article that goes into some of their recent events: http://seekingalpha.com/article/1304671-alcatel-survival-mode?source=yahoo
If you look at ALU's history, they were trading around $15 a share before the crash in 2008 where it tanked to about $1.30 a share. Two years ago it crossed $6 but then dropped again to below $1 a share. Again, it is considered a HIGH RISK stock, but here is why I think the stock can double in the next two years. (This is where things get crazy)
So, Japan's 3rd largest telecom, Softbank (OTCPK:SFTBY), is buying Sprint (NYSE:S). They largely use the 2.5 GHz spectrum which is super fast, but has trouble going through walls. The way to get around this is by using things like ALU's lightRadio to boost the signal strength in buildings and stadiums.
Sprint is buying Clearwire (CLWR) which controls almost all of the U.S.'s 2.5 GHz spectrum. Both Sprint and Clearwire are spending billions of dollars on their 4G network build out (which potentially can be the faster that Verizon and AT&T when finished). For this to be successful, they are going to have to invest heavily on these devices in major cities.
Clearwire entered an agreement to make their network compatible with China Model's (ADR) (The world's largest telecom) 2.5 GHz network. (http://www.streetinsider.com/Corporate+News/China+Mobile+(NYSE:CHL),+Clearwire+(CLWR)+Enter+MOU+Over+TD-LTE+Technology/7586786.html)
China Mobile named ALU as one of their vendors for their 4G LET build-out. (http://www.fiercebroadbandwireless.com/story/china-mobile-names-seven-vendors-td-lte-network-trial/2012-10-17)
Sprint/Softbank promised not to use Chinese companies for their 4G LTE build-out, a source of major competition. They also said that, if the deal between Sprint and Clearwire gets completed, they will start replacing Clear wire's Chinese equipment with other vendors. (http://beta.fool.com/liveinvestor/2013/04/01/sprint-and-softbank-reject-chinese-equipment-purch/28464/?source=eogyholnk0000001)
So to summarize, ALU is a risky company that I believe has finally hit rock bottom and will only go up from here. It has had a rough few years, but the stock price can be deceiving, it is a massive company and isn't disappearing anytime soon. Even though it is probably rank 5th or 6th in this industry globally, it is the only one that can provide the whole package. Cisco (NASDAQ:CSCO) (which I just sold my holdings in for a profit so I could buy ALU) and Juniper are rocking the router and server markets (even though ALU is catching up on Juniper), but neither of them has a solution that is market ready yet for the concern that all wireless companies have surround signal strength and network congestion. (Which is hugely important for any company building out a wireless network based on the 2.5 GHz spectrum) As for a little more evidence towards the quality of ALU's product offerings, take a look at this: http://www.fool.com/investing/general/2013/04/18/alcatels-turnaround-continues-with-ultra-fast-netw.aspx
ZTE, Hauwei, Ericsson (NASDAQ:ERIC), Nokia-Siemens are the other major players that ALU has to compete against. Luckily, in the US market the competition for ALU has drop down to three potential companies since ZTE and Hauwie have been blacklisted, at least by the Sprint/Softbank/Clearwire conglomerate and Verizon is currently using ALU. On top of that, out of all the companies filling mobile-related patents this year (that includes phone manufactures, service providers, and network developers) ALU is top ten, which can be taken as a sign of hope for the future.
So, now that I've killed you with articles, what do you think? I have done well with my investments in Clearwire and Sprint so far (I bought Clwr at $1.94 and it is now $3.24. I bought Sprint at $2.69 and it is now $6.22) and in researching these stocks heavily, it lead me to ALU.
What I have sent you is just a crash course on ALU and the market place with my own bias so definitely do some of your own research. I'm planning on holding onto them for at least a year and a half and am hoping it will be trading around $3 a share. At that point I will reevaluate my position.
Let me know if you have any questions,
Additional disclosure: This is purely for fun and is highly speculative. It is not meant to be based on any fundamentals, but rather events happened which in turn may affect ALU. This was written before Dish's bid on Sprint.