|
|
Enron Mail |
********************[ A D V E R T I S E M E N T ]****************
Like the diversification of mutual funds but not the fees and taxes? Try FOLIO investing and easily buy portfolios based on indices, sectors or any group of stocks you like, even the Money 30. Take advantage of our HALF-PRICE Offer for Money Readers. CLICK Below http://www.foliofn.com/content/lp/lp.jsp?id=monyem00031000y ***************************************************************** SIVY ON STOCKS from money.com November 22, 2000 Phone glut Lucent continues to suffer. Will the stock recover anytime soon? And will overcapacity problems in the industry spread to other telecom stocks? By Michael Sivy Lucent [LU] is the Florida of the telecom sector. It's big, it's booming and it can't stop bungling. Lucent's latest foul-up was announced Tuesday: The company said it would have to revise down the results reported for the September quarter because of errors in the way sales were recorded. Even worse, management said it won't be able to provide analysts with reliable earnings guidance for the current quarter. The real problem isn't the money -- third-quarter earnings will be hit by just about 2 cents a share -- it's the principle of the thing. Investors always turn skeptical when a company overstates its prospects only to lower its sights later on. And Lucent has been pulling the rug out from under analysts all year. Investors get even more nervous when a company mentions accounting mistakes, no matter how small or innocent they seem. So Lucent's most recent announcement sent the stock as low as $16.50, down more than 75 percent from the start of the year, before recovering to $17.75. Lucent's latest troubles raise several questions for investors: What are the company's problems? What are the implications for the entire telecom sector? And what do Lucent's recurrent selloffs mean for value-oriented investors in today's market? The last question is easiest to answer. We're in the middle of a downtrend for technology stocks. Companies that disappoint investors will receive little mercy. And it's very easy to get burned by a stock that appears to have bottomed. I feel that particularly keenly, since I recommended Lucent in July as a value play at $44 a share, after it was already down nearly 50 percent from its all-time high (see "The shining"). [ http://www.money.com/depts/investing/sivy/archive/000731.html ] As for Lucent's problems, two are unique to the company itself, and both result from its spinoff from AT&T in 1996. For more than a century, Lucent had been able to rely on the Bell System as a captive customer, and so the newly independent company failed to keep up with competitors in key areas like optical technology. Second, Lucent is still reshuffling top management to find a team that can get both the product line and the accounting system in good running order. The broader question is what Lucent's troubles indicate about the telecom sector. Basically, the entire sector is suffering from various forms of overcapacity. All the telecom companies geared up in one way or another for much more business than has actually materialized. The result -- when supply outruns demand -- is cutbacks in purchases of capital equipment and falling prices. Those short-term problems can be painful, but excess capacity always gets used up -- and often far faster than analysts expect. So I imagine that within a year or two, all telecom companies will face a firmer pricing environment and their share prices will rally. I believe that investors who want to build a long-term position in technology need to own telecom stocks. It's impossible to know when any particular stock will bottom -- in the short run, any telecom-related stock could go lower, and not even the most successful, such as Cisco [CSCO] and Nortel Networks [NT], are completely safe. But stocks like AT&T [T] and WorldCom [WCOM], as well as Lucent, all are trading at least a third below their asset value. You have to buy when stocks look undervalued and then hang on without flinching if they go lower. The long-term profit potential is there. And the best protection is diversification and patience. ====================================== Check out these new features on money.com: STOCKS Year-end checklist Our moves to make before the year's end are all relatively easy. (In fact, some can even wait for later.) Best of all, they could save you money. http://www.money.com/depts/investing/yearend/ TECH INVESTOR by Pablo Galarza Not dead yet Don't let a few bad months scare you out of the best growth stocks. http://www.money.com/depts/techinvestor/archive/001122g.html MUTUAL FUNDS Foul-weather funds Seven funds that offer shelter in a stormy market. http://www.money.com/depts/investing/safefunds/ STOCKS How to play this market Up, down, up, down, down, down... The rules have changed. Here's what matters now -- and the stocks to put you back in action. http://www.money.com/depts/investing/play/ ====================================== ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ Earning Releases and Calls For the latest corporate earnings releases and online conference calls click on: http://money.ccbn.com * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a RISK-FREE issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. If you would prefer us not use your e-mail address in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletter, please let us know by e-mailing us at <no_transfer@money.com<.
|