As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.

We can't know for sure whether Buffett is about to buy Alcatel-Lucent (NYSE: ALU) -- he hasn't specifically mentioned anything about it to me -- but we can discover whether it's the sort of stock that might interest him. Answering that question could also reveal whether it's a stock that should interest us. In this series, we do just that.

Writing in a recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:

  1. Consistent earnings power.
  2. Good returns on equity with limited or no debt.
  3. Management in place.
  4. Simple, non-techno-mumbo-jumbo businesses.

Does Alcatel-Lucent meet Buffett's standards?

1. Earnings power
 Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.

Let's examine Alcatel-Lucent's earnings and free cash flow history:

Source: S&P Capital IQ.

Over the past five years, Alcatel-Lucent has had a difficult time generating earnings, though it's been turning things around over the past year.

2. Return on equity and debt
 Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.

Since competitive strength is a comparison between peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.

Company

Debt-to-Equity Ratio

Return on Equity

5-Year Average Return on Equity

Alcatel-Lucent 130% 19% (23%)
Nokia 39% 2% 23%
Cisco 36% 14% 20%
Motorola Solutions 35% 9% 0%

Source: S&P Capital IQ.

Historically, Alcatel-Lucent hasn't generated very high returns on equity, though it has shown a dramatic improvement in recent years. It employs a considerable amount of debt.

3. Management
 CEO Ben Verwaayen has been at the job since 2008. His time at Alcatel-Lucent started in 1997, interrupted for a few years when he was CEO of the massive London-based telco BT Group.

4. Business
 Communications equipment requires constant research and development, but the industry isn't particularly susceptible to wholesale technological disruption.

The Foolish conclusion
 So is Alcatel-Lucent a Buffett stock? Probably not. The company has a tenured CEO, but it doesn't yet exhibit the other characteristics of a quintessential Buffett investment: consistent earnings and high returns on equity with limited debt. To stay up to speed on Alcatel-Lucent's progress, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks by clicking here.