Alcatel-Lucent (NYSE:ALU) is one of those tech stocks that many investors think is dead money — a holdover from the tech bubble that has been in a slow decline ever since.
In case you don’t remember what the company does, here’s a condensed history: Spun off from AT&T (NYSE:T) in 1996, Lucent was the equipment arm of the telecom giant that held a host of patents and specialized in infrastructure and hardware — not services. It joined up with France’s Alcatel in 2006 to create the world’s largest equipment supplier to telephone and wireless carriers. Both Alcatel and Lucent were dot-com darlings that each went from under $8 per share to $80 during the tech bubble and have languished in the decade since.
In recent history, the five-year returns at Alcatel-Lucent of -80% make the stock even less attractive to stock market investors.
But investors should take serious notice of this stock. Although telecom equipment isn’t very sexy, the fact that we are living in an increasingly wired world means that ALU stock has big potential in the years ahead.
Day traders have been having a field day with ALU stock for a while. After all, you can’t find many other $6 billion stocks under $3 per share — as of this writing, it’s Sprint Nextel (NYSE:S), Sirius XM Radio (NASDAQ:SIRI) and battered financial stocks Lloyds Banking (NYSE:LYG), Mizuho Financial (NYSE:MFG) and Nomura Holdings (NYSE:NMR).
But a look at that list outlines what makes Alcatel-Lucent different.
Sprint is the bastard stepchild of wireless telecom, hasn’t turned a profit since 2007 and is projected to continue posting quarterly losses until 2013. It has struggled mightily to hold steady amid the duopoly of larger providers AT&T and Verizon (NYSE:VZ).
Sirius has managed to slim itself down and operate at break-even — but after 20 years, the company has been around long enough to raise serious doubts about whether there ever will be substantive growth ahead for the satellite radio market.
As for financial stocks … well, you should know the score on that one.
Alcatel-Lucent, with its own profitability problems, certainly doesn’t have the best balance sheet in the world. However, there are indeed growth prospects in the world of telecommunications equipment. If networks are upgraded and businesses build out their infrastructures with ALU gear, it could mean big things for this stock.
That’s a big “if,” of course. Sprint just made big waves by announcing it effectively has abandoned its 4G platform, and the capital-intensive nature of network spending makes it a dicey proposition in these tough economic times.
But if and when demand for wireless equipment heats up, ALU will be the premier provider and reap the benefits. Shares are at a 52-week low, so they could be a huge bargain under the $3 mark.
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
