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3 Reasons to Sell Alcatel Lucent

Alcatel Lucent (NYSE: ALU  ) may look like a tremendous bargain after share prices plunged 75% since last July, but sometimes you get exactly what you pay for. Here are three reasons to stay away from this stock today.

1. Shaky accounts
Analyst firm Bernstein warns that Alcatel might default on its loan obligations unless gross margins improve dramatically. That's a scary idea, as loan defaults often go hand in hand with bankruptcy. And it doesn't help that Alcatel's 10% market share in telecom equipment lags behind Ericsson (Nasdaq: ERIC  ) and Nokia (NYSE: NOK  ) , which have 40% and 20%, respectively. The company doesn't have much pricing leverage from this position.

2. Skeptical investors
The Wall Street Journal called Alcatel's recent shareholder meeting "raucous," as shareholders questioned key points of the company's strategy. CEO Ben Verwaayen's cost-cutting efforts haven't delivered the cash profits he promised four years ago, and Alcatel seems vulnerable to heavy competition.

3. Cash bleed
The company has been burning cash like crazy for years, despite Verwaayen's cost controls. This chart speaks volumes about Alcatel's cash problems. Burning cash at an annual clip between $500 million and $1 billion typically has a negative impact on financial performance. It's charts like this that make Alcatel's share price slide seem firmly grounded in reality.

ALU Free Cash Flow TTM Chart

ALU Free Cash Flow TTM data by YCharts.

None of this means that you should dump your Alcatel shares and run for cover right now, but it's food for thought and a good starting point for further research. Digital video, mobile networking, and the big data trend may combine to bring Alcatel back on its feet -- but it's hardly a sure thing. This free report will show you one stock that is a sure bet on Big Data, though.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool has a disclosure policy.

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Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 27, 2012, at 12:23 PM, DAG_Investments wrote:

    Seems slightly contradictory to start an article with a big bold headline like "Reasons To Sell", then bury at the end a comment like "None of this means that you should dump your Alcatel shares and run for cover". So, what exactly is the point here?

  • Report this Comment On June 27, 2012, at 2:03 PM, TMFZahrim wrote:

    From the article, @djohn1969: "... it's food for thought and a good starting point for further research."

    3 reasons to sell, but there are also reasons to buy:

    Look for another story, probably tomorrow, that reconciles the ups and downs.


  • Report this Comment On June 27, 2012, at 3:35 PM, whoo123 wrote:

    uh, anders...two days ago you wrote about '3 reasons to buy alcatel lucent'.

  • Report this Comment On June 27, 2012, at 6:02 PM, r00kie888 wrote:

    2 more days until the "3 reasons to hold ALU" for the trivecta.

  • Report this Comment On June 27, 2012, at 6:12 PM, vaderblue wrote:

    Alu has the cash and a/r if they were to collect the

    a/r. The price is tempting being below book. I see no red flags as of yet to sell the stock. Let's wait and review the 2nd qtr financials. I am still in. When I think of the times I cut and ran prematurely I could have made profits. Fear is not in my porfolio. 20/20 Hindsight.

    Be like Buffett and go for it.

  • Report this Comment On June 27, 2012, at 6:44 PM, krigah wrote:

    Unbelievable, every day for the past week I've been reading about reasons to buy ALU shares and now this guy comes up with this. The company is a monster, huge, employing tens of thousands of individuals and seriously undervalued. The shares have cost in the high two figures in the not that distant past, just do the search. Any time a company does not reach the exagerrated expectations of "experts" everyone listens to them and runs for cover. This is the best time to own this stock, buy it with confidence and as much as you can.

  • Report this Comment On June 27, 2012, at 6:59 PM, slolee wrote:

    Exactly! They post to buy ALU one day and then sell the next. What is so ridiculous is that some people actually do what the article recommends. It's like they want the pps to go up and down every three days or so to take profits, rinse, buy again, repeat!

  • Report this Comment On June 27, 2012, at 11:29 PM, serge9 wrote:

    it seems that any Fool can write any foolish thing,

    and the fools get it published!!

    on June 25, 2012, Anders Bylund wrote,

    3 Reasons to Buy Alcatel-Lucent Today

    on June 27, 2012, Anders Bylund wrote,

    3 Reasons to Sell Alcatel Lucent

    any thing goes, any time,

    after all, this is a fool writting to Fools

    so, who care!

  • Report this Comment On June 28, 2012, at 12:00 AM, twofatladies88 wrote:

    Its all about execution and delivery, companies that can deliver on time, with quality and maintain SLAs; remain succesful; others flounder; and perish.

  • Report this Comment On June 28, 2012, at 9:57 AM, newbender wrote:

    3 reasons to buy, then 3 reasons to sell. If a fool is going to recommend a buy, then all the facts should be laid on the table especially when all the facts were available, not come out with reasons to sell a few days later. I'm new to the stock market, I own the stock and will hold, but i'm quickly losing faith in the fools.

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