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08/01/2003 12:00 am EST

Focus:

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer remains a fan of the battered telecom sector. In his latest The Option Advisor , he suggests two wireless phone plays--AT&T Wireless and Ericsson. Meanwhile, Roger Conrad, editor of the Utility Forecaster, continues to recommend select telecom plays, including Alltel.

Bernie Schaeffer notes, "AT&T Wireless (AWE NYSE) blew away investors when it reported second-quarter earnings of eight cents per share, vs. expectations for four cents. Despite impressive technical and fundamental strength, investors remain skeptical. More than 39 million shares have been sold short, raising the chances of a covering rally to boost the stock higher. Wall Street is also giving AWE the cold shoulder. Zacks reports 12 of the 25 analysts covering the equity rate it a 'hold' or worse. For options traders, we recommend the January 2004 7.50 calls. Meanwhile, L.M. Ericsson (ERICY NASDAQ), the international telecom, reported a narrower-than-expected second-quarter loss and its relative-strength measure vs. the Nasdaq Composite has been in a nice uptrend. Regardless of this strength, options players view the shares with overwhelming pessimism. The number of shares sold short is more than four times its average daily trading volume, which would provide ample fuel for a covering rally. Zacks is showing heavy skepticism, with 14 of the 17 analysts rating ERICY a ‘hold’ or worse. Any upgrades could send the stock shooting higher. We recommend the January 2004 12.50 call."

Roger Conrad, editor of the Utility Forecaster, recommends Alltel (AT NYSE). "The firm continues to shine in an exceedingly difficult market for telecoms. Following the trend of prior reports, the company's second-quarter profits from current businesses surged 10% on an 18% jump in revenue. Wireless sales (up 19%) and wireline revenue (up 22%) both showed healthy growth, as the ute continued to add customers and to bundle its existing base to new products. The company reached a 6% penetration rate for broadband users, while cutting wireless customer churn (turnover) fell to its lowest level ever and near the bottom for the sector. Alltel's key strategic advantage remains its rural focus, where competition is weak and demand strong. Coupled with strong finances and opportunistic management, that should sustain its strong growth even if the industry remains weak overall. And now back in the high 40s, it's a bargain to boot."

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