A Tactical Look at Lucent

02/27/2004 12:00 am EST

Focus:

"We believe the telecom sector has yet to see its best days and the biggest surge in spending lies just ahead," says Bryan Perry, editor of The Tactical Trader."The market setback has given us an opportunity to buy a dip in a key name in this market, Lucent." Here’s his review.

"We are recommending going long shares of Lucent Technologies (LU NYSE). The company, backed by Bell Labs research and development designs and delivers the systems, services, and software that drive next-generation communications networks. Lucent's customer base includes communications service providers, governments and enterprises worldwide. For the three months ended December 31, 2003, revenues rose 9% to $2.26 billion. The company beat consensus estimates by 4 cents, and turning a profit was a huge accomplishment for what once was the most widely held stock in America. It seems business has not only stabilized, but has turned positive. The massive cost cutting of the past four years combined with a rebound in carrier spending is the right formula for EPS growth.

"Needless to say, seeing the company grow both the top line, the bottom line and return to profitability has Wall Street gaga over the shares. The stock hit $5 recently and fortunately has pulled back 20% down to the $4 level, where the selling is starting to dry up. There appears to be about 20 cents of downside risk from here, as the 50-day moving average sits just below at $3.80 per share. Our most recent survey results suggest that business over the next couple of quarters will be very robust for Lucent. Only Nortel scored higher and it has already made a run from $4 to $8. Lucent is next. And crossing $5 will bring on a whole new wave of technical and margin buying by hedge funds. Buy it here for a trade to $6 for a projected gain of 50%."

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