Sometimes, when a CEO gets fired and a fresh face is placed in the corner office, it's fair to think, as the market goes into panic selling, that it's a contrarian's buying opportunity. Maybe.
But if you think that the share-price slide prompted by the criminal investigation launched against Nortel Networks (NYSE:NT) and a trading ban on company insiders makes for a buying opportunity, you had better think again. Compared to last month, when there were few clues about the extent of Nortel's financial statement shenanigans, things look a lot worse now. Nortel isn't going to escape unscathed. So, if you're loading up on Nortel, you've got a lot of nerve.
For starters, when the CEO of one of Canada's biggest corporations gets fired, you had better believe that something is terribly wrong. Don't forget, Canada is a country where bungling CEOs are normally punished by way of big pay raises. As a Canadian, I know.
Sure, some pros are calling Nortel a buying opportunity. As Nortel's CEO, chief financial officer, and controller headed out the door, several analysts and pundits characterized the company as a "buy."
Indeed, it's tempting. For $3.25, you can buy Nortel for just 1.2 times its projected 2005 revenues. Underneath the financial and regulatory mess, there is the semblance of a healthy core business. Telecom carriers seem to be increasing their spending on next-generation wireless and on voice-over-Internet technology, both areas in which Nortel is strong.
But this is not a buying opportunity. The Nortel knife hasn't stopped falling. It's likely just a matter of time until Nortel unveils the next snippet of financial reporting information that pushes the shares to the floor.
Issuing a subpoena for Nortel's financial statements and accounting records this week, the U.S. Attorney's office in Texas joins a growing crowd -- including the SEC, the Ontario Securities Commission, and the Canadian police -- already investigating the company. Several major shareholders have launched legal claims against the company. Together, they could dig up more unsightly news.
If you think that the new CEO, Bill Owens, once the second-highest-ranked officer in the U.S. military, will whip the stock into shape in short order, be ready to hunker down for a long battle. Can things get worse for Nortel? Absolutely.
There are Fools discussing Nortel's prospects on the Nortel Networks discussion board. Join in today.
Fool contributor Ben McClure hails from the Great White North. He doesn't own any shares mentioned here.
