Ah, Bill, you disappoint me. Not because you fail to amuse -- far from it -- but because you did exactly as I predicted in my bear opening before I even saw your initial parry. I said that, undoubtedly, you would extol Lucent's nifty products. And you did. Sadly, a list of contracts does not a future make in the face of a paucity of management and human and financial capital.
So to close this sorry tale, which not even my worthy opponent's literary talents can save, I add to the argument that Lucent's stock will not outperform the market averages for any reasonable long-term investing period, with the exception of a near-term buyout at some anemic premium.
The Motley Fool proffers two investing strategies -- Rule Maker and Rule Breaker -- that illustrate techniques for trying to outperform the market averages. A cursory review of their principles shows why any investor considering Lucent has no reason to choose it over a total market stock index fund.
The Rule Maker strategy posits that the way to beat the market's average return over the long term is to invest in successful, market-dominating companies so powerful and well-run that they not only dictate the terms of their worlds, but allocate capital splendidly. We need not travel far. First, Lucent does not dominate any current market, thought it may share some of the spoils. Second, its debt and gross and net margins cause Lucent to fail the strategy's requirements for profitability and capital management.
I am a skipping CD: The best Lucent may do is to use its expertise in mobile wireless communications equipment to earn a buyout at a pathetic premium in excess of its current valuation.
Some companies are Rule Breakers, first out of the gate to create new industries or transform existing ones. Qualcomm's (Nasdaq: QCOM) CDMA wireless communications technology could change the world, but must displace billions in entrenched investment or fight competition backed by a continent's pride. Starbucks (Nasdaq: SBUX) tries to create a worldwide consumer brand business and change the way people buy and consume coffee and related products. Millennium Pharmaceuticals (Nasdaq: MLNM) uses biotechnology advances to create an industrial-scale drug discovery and development process and produce new successful drugs.
Can anyone really argue that Lucent is the top dog or first mover in an important, emerging industry? Wherever you look in its remaining important and emerging businesses -- mobile wireless and optical networking -- it is not the leader. If it ever was top dog, it has long since squandered any lead worthy of the name Rule Breaker.
As I argued persuasively in the bear opening, Lucent offers no potential for spectacular returns, even if it overcomes the risks of its history of poor management and huge debt. At best, it will only limp along to provide modest returns or be bought out.
Give me an index fund. Not Lucent.
Tom Jacobs (TMF Tom9) believes that hot tubs provide market-beating returns in the winter but not in the summer. At press time, he owned shares of JDS Uniphase. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.
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