TAKING STOCK: Alcatel-Lucent

Dear Mr. Berko:

On the growth portion of our growth and income account, my broker bought me 2,000 shares of Alcatel-Lucent at $4.92 per share. He recently called to recommend that we buy 2,000 more shares. Our account is valued at $243,000. So do you think we should buy 2,000 more Alcatel? We have never heard of this stock until several months ago, and we know it's speculative. Please advise us because our broker thinks the stock can soon rise to $10. Please respond immediately, as we are nervous about missing out on a new product he thinks they have that is supposed to make the stock jump.

H.A., Aurora, Ill.

Dear H.A.:

I doubt that Alcatel-Lucent will trade at $10 "soon." Calm down, take a few deep breaths, exhale slowly, then try a few puffs of wacky weed. Alcatel-Lucent (ALU-$5.33) is a French company that took over Lucent, formerly Bell Labs, a few years after it was spun off from AT&T (T-$28).

Lucent, the research brains behind most of T's innovations, used to trade in the stratosphere at 200 times earnings. Back in the very late l990s, Lucent was one of those massively overpriced dot-com darlings promoted by Wall Street's cocaine-snorting cowboy analysts who told us it would top $1,000. Lucent collapsed to pennies when the dot-com market imploded, so in 2002, the French bought it for a case of Bordeaux plus some shares of ALU stock.

As readers may recall, I have, on a number of past occasions, recommended the Lucent Technologies 7.75 percent (LUTHP-$980) convertible preferred when it was trading at $500 and $800 per share. And with a 7.80 percent current return today, I still recommend LUTHP.

Wireless broadband is exploding by orders of magnitude as users access expanding content and interactive applications with their mobile devices. This dramatic growth seriously increases operating costs, energy consumption and demand for those ugly 200-foot towers festooned with ganglia-like antennas that are cost prohibitive and nearly impossible to build in dense urban areas.

A few months ago, ALU introduced a device measuring 3 inches by 3 inches by 3 inches called Light Radio. It weighs 11 ounces and fits in the palm of your hand. This compact package contains antennas, microchips, integrated circuitry, machochips and nachochips that send signals from here to there and back again at the speed of light. Verizon, AT&T, T-Mobile, etc., can glue this thing to a rooftop or a telephone pole, wherever coverage is needed, providing an electrical source is nearby. And while the first versions of this Light Radio will easily plug the growing holes and increasing lapses in coverage, it must be wired to a cellular base station, which is that cabinet-sized rack housed at the bottom of a tower. And in the coming few years ALU will integrate all the bulky base-station technology into Light Radio units as well.

Consumers are downloading more songs, movies, texts and apps on their cells, and the carriers don't earn a penny of extra revenue from these "data hogs." So carriers are struggling to cope with this intense helter-skelter rise in traffic, which has been growing in excess of 27 percent annually. And Light Radio can lower the cost by at least 50 percent, eliminating the "not-in-my-backyard" types, the Achilles' heel of every carrier. This may be the greatest thing since chicken wings.

Because you're an income/growth investor, I'd not buy another 2,000 shares of ALU. ALU never paid a dividend, and I doubt it will until 2019. I'd rather you bought $10,000 face value of LUTHP and enjoy the extra interest on this "busted" convertible preferred.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Mon, Apr 18, 2011


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