TAKING STOCK: Wide-eyed and desperate in Blue Eye

Dear Mr. Berko:

I would like buy 5,000 shares of Alcatel-Lucent. Please give me your thoughts. Also, is there any clear way for you to explain the bailout process of the troubled European countries without going into all those fancy banking terms that none of us understands?

WP: Troy, Mich.

Dear WP:

Blue Eye, Ark., halfway between Table Rock and Oakville, sits at the junction between State Roads 21 and 311 where County Road 680 runs north and south right through the center of town.

It hadn't rained in months, and Blue Eye's two main roads were dust-dry as the setting sun burned intensely through the haze of a late July afternoon. As you know, these are tough times in Everytown, USA, and many folks are living on credit.

At about 6:30 p.m., a tall, hard-looking stranger with barbed wire behind his eyes was passing through town on his way to Bentonville and stopped his Land Cruiser across from Hibben's Hotel on Mills Street. He slid out of the truck, his boots kicking swirls of dust that trailed behind as he walked in the door, slapped a $100 bill on the desk, and told the proprietor that he wanted to inspect a third-floor room before he stayed the night.

Mr. Hibben gave the tall, hard looking stranger the key to 321 and took the $100 bill next door to pay his debt to the baker. The baker grabbed the $100 bill and rushed to pay the Fogart's Feed and Seed store on College Street. Then Fogart took the $100 and paid his debt to Tribble's Tavern on County Line Road. Tribble then passed the $100 to the town's bumpkin, who cleans the Tavern and runs errands. The bumpkin then scurried to the hotel to pay his month's room rent to Mr. Hibben - with the stranger's $100 dollar bill.

Mr. Hibben slapped the $100 right back on the front desk counter so the stranger wouldn't think something was amiss. At that moment, just when the bumpkin left Hibben's, the tall, hard-looking stranger with barbed wire behind his eyes strode down the stairs, retrieved his $100 bill, put it in his pocket, told Mr. Hibben that the room was unsatisfactory, left town in his Land Cruiser without saying goodbye and continued on to Bentonville to meet the Waltons.

Not a soul produced a product. No one performed a service and no resident earned a dime. Yet everyone in Blue Eye, Ark., is out of debt and the whole town is optimistic about the future. And that, WP, is how this bailout package works.

Alcatel, a French company, merged with Lucent Technologies, a Bell Labs company, in 1996 to become Alactel-Lucent (ALU-$1.51), a $23 billion telecom equipment manufacturer and IP company with 87,000 employees conducting business in 130 countries around the globe. Earnings should double to 40 cents in 2012, and I think the stock price that collapsed due to Europe's economic problems could recover to the $3 level in the next 24 months.

However, I'd rather own 10 shares of Lucent's 7.75 percent Convertible Preferred shares (LUTHP-$605), with a current yield of 12.8 percent. LUTHP ($1,000 par value) is convertible into 206 shares of ALU at $4.86 and rated CCC, which is pure, unmitigated junk ... but in my opinion, this is high-class pure, unmitigated junk that shouldn't have a bit of trouble paying its $77.50 per-share dividend.

I think the shares of LUTHP can move up to the $800-to-$900 level in the coming two years. And while you're waiting for this preferred to appreciate, you'll get a rich 12.8 percent yield.


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, Jan 16, 2012