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Is It Time to Short Alcatel-Lucent?

While Alcatel-Lucent did pop recently, the best investing approach is to choose great companies and stick with them for the long term. Make sure you start 2013 with a bang and get the inside scoop on what Motley Fool superinvestor David Gardner will be buying this year. He's crushed the market in his Stock Advisor and Rule Breakers portfolios for years, and now I invite you to a personal tour of his flagship stock-picking service, SupernovaJust click here now for instant access.

Brendan Byrnes: Hey Fools, I'm Brendan Byrnes and I'm joined by Andrew Tonner, our tech and telecom analyst for

Andrew, let's talk Alcatel-Lucent. Big run-up recently; let's get the bear case.

Andrew Tonner: Yeah, a huge run-up. I think after we've seen this basically 60% pop for them, the question I'm wondering -- it might be a little bit of a strong one, but -- is it time to short Alcatel-Lucent?

The reason for this, or the catalyst for this pop, was basically the $2.1 billion in credit financing they secured from Goldman Sachs and Credit Suisse. Definitely a win, because there were even people talking about the company eventually facing insolvency at some point in 2013 or 2014.

But at the same time, it basically allows them now to roll out their debt for three years, which again buys them time to complete their announced $1.1 billion cost restructuring program. All of this sounds great, right? Investors should be enthusiastic, but at the end of the day it doesn't really change any of the underlying economics that are the real problem or the real drag on Alcatel's financial performance.

Again, they operate in an extremely competitive environment. There are only a certain number of these large, fixed contracts that are kind of the bread and butter of their business model, and there are so many people bidding for them.

The competition is so extreme, you have companies like Ericsson, Nokia and Siemens, who are also fighting for it. Now with the emergence of Asian lower cost competitors like ZTE and Huawei, it's a brutal industry for these companies.

It's a great story now, I guess. You have one of the most immediate overhangs alleviated for them, and now the company's not going to go bankrupt...

Brendan: That's good news.

Andrew: Yeah, which is good news, but at the same time doesn't justify a 60% pop when really nothing else has changed for them. I don't think so.

I'm not saying to short them -- that's a pretty strong statement -- but I would say I'm definitely skeptical.

Now, it seems like the kind of stock that maybe the traders have taken over, and fundamentals are starting to not matter as much, so I'm skeptical. I'm definitely staying on the sidelines while I look at this stock, but good for them. It's been a nice run, lately.

Brendan: Yeah. All right, definitely an interesting view. Thank you, Andrew. Make sure to head over to for more analysis.

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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 January 11, 2013, at 8:25 PM, Robertlhayes wrote:

    short alu?yikes! 60 % pop not justified? no kiding.nothing has changed? thats funny.stay on the side lines.How much does that pay? disclosure long alu shares at 1.01.

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