For Lucent, the Only Way Is Up

Lucent shares have climbed nearly 40 percent in the past few days with no real catalyst

July 10, 2002

2 Min Read
For Lucent, the Only Way Is Up

Lately, investors may be likening their Lucent Technologies Inc. (NYSE: LU) shares to the big bag of canned goods on a TV game show -- they'll have to do as a consolation prize absent the enormous riches that once seemed possible.

Lucent's stock has been on a tear lately, climbing about 36 percent from July 3 to July 9. In late morning trading Wednesday, Lucent shares were up $0.09 (4%) to $2.13.

There are several tiny reasons why its shares are going up, but no definitive event for investors to rally around.

"In general, people are getting a little more comfortable with Lucent's balance sheet," says A.G. Edwards analyst Greg Teets. "They look to be in a good position to weather the storm better than some of their competitors."

Adding some wind to Lucent's sails is the fact that Tuesday evening Nortel Networks Corp. (NYSE/Toronto: NT) was among several stocks booted from the Standard & Poor’s 500 Stock Index, one of Wall Street's most widely followed stock market indices. Also, on Wednesday, Moody's Investors Service cut its ratings on Alcatel SA's (NYSE: ALA; Paris: CGEP:PA) debt, a move that makes it harder for the company to borrow money at competitive rates.

There's also the fact that those who short sold the stock and made money while Lucent shares were crashing are now "covering," or buying shares to replace those borrowed during the short sale. "There's no great risk/reward [ratio] here," says Bryan Bigari, an analyst at Fulcrum Investment Group, the Chicago hedge fund. "[Lucent] has better than a 50 percent chance of staying alive, and [short sellers] have already made a ton of money" shorting Lucent shares.

In the unconfirmed rumor department, there was once chatter of General Electric Co. being interested in buying some or all of Lucent's business. Mention of that rumor is increasingly being met with quizzical stares, however.

Lastly, there's the "Why not" theory: With all telecom stocks looking as bad as they do, Lucent, with a household name, relatively new management, and cash in the bank, makes some investors say, "Why not?"

"After 18 months of continuous selling, that's what happens," says David Segelov, a general partner at Ballarat Capital, a New York money management firm.

— Phil Harvey, Senior Editor, Light Reading

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