Alcatel-Lucent (ALU) has had its fair share of bearish moments in recent days. I even think the term bearish moments is an understatement considering the cloud of adversity that has refused to go away. To further aggravate the situation, competitors like Cisco (CSCO) and Ericson (ERIC) have the financial edge.
Talking about finance, there is one beauty about money that even the best of the best fail to capture: Money talks. Regardless of the degree of advancement exhibited by a stock, without money, the breakthroughs are soon forgotten to the welcome of other news. This is exactly the case with Alcatel and its competitors. You seriously cannot compare Alcatel’s paltry $543 million net income to Ericsson’s $2.4 billion and Cisco’s greater $7.63 billion. This shows that Alcatel has a really long way to go if it, in any case, wants to establish a comfort zone in its highly competitive market.
Saddening P/E ratios
P/E ratios typically give a representation of expectations. By comparing Alcatel’s P/E ratio to that of its competitors, you do realize that the equipment behemoth yet again takes another blow. Its ratio of 2.18 is a mere divide of Cisco’s 12.47 and Ericsson’s 11.62. “Separated by light years,” comments an investor who opts for anonymity.
In actual sense what is happening is that the market’s expectations for Alcatel have hit rock bottom. Cisco and Ericson have reduced the battle to a two person show and Alcatel has been left to languish in the shadows. Nonetheless as the prevailing conditions continue painting a dark shade of gloom, I have come to realize that Alcatel indeed has a comeback strategy — one that has been greatly overlooked.
Alcatel learns from the best teacher
If the market was a school then Alcatel would be one of those students who get high-profile private tutors. The tech equipment heavyweight is certainly learning from the best as it has had its fair share of ups and downs in the market. Experience, the best teacher, has instilled some hard-learned lessons in Alcatel.
One big beating it got was at the wake of the 2008 financial crisis. In as much as it added to the list of innumerable tech players that got a beating, Alcatel was by far one of the worst hit. To further aggravate its rickety framework at the time, its financial backing could not support a major comeback. Nonetheless, it did manage to squeeze its way through the bottleneck and even recorded unprecedented results.
At that time, I was even convinced that the financial crisis was a mere Lehman moment gone awry and not the big over-hyped story that journalists like me pushed forward. I mean, how did Alcatel report such earnings after what was deemed by many the biggest financial catastrophe of the new-age financial world? Though I don’t know the exact answer, I do know one thing: Alcatel knows how to handle itself when it is pushed to the bearish ends. Therefore do not be surprised if you see Alcatel springing back up.
Room for improvement
Performing well is one thing, but reaching your self-proclaimed peak can be dangerous. Looking at Ericsson, I must say that it has reached a self-proclaimed peak. It has even been recently given a day in its honor as the day’s featured telecommunications winner. Maybe the fact that it is minimizing the gap between itself and Cisco while at the same time trampling on Alcatel has gotten to its head. All in all, right now it has little or no acceleration compared to Alcatel. This is because unlike Alcatel, it is surefooted that it has sealed up all the crevices.
Actually, Alcatel has a lot of room for improvement. Given its past track record, chances that it will spring back to its rightful position are high. It is actually a better buy than Ericson as it can move up easier and in the process provide investors with their primary goal — returns.
In conclusion, I am aware that the mundane outlook probably leans towards selling. By the book, this would be the right thing to do. If you have experience in investing, however, you will realize that "the book" reaches out to the majority and the majority are not the best investors.
The best investors in most cases are those who go east while everybody else runs west. Alcatel-Lucent is a definite buy for the long haul.
About the author:
Muhammad BazilMuhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.