Barron's cover story "Smart investors are picking through the market carnage in search of bargain bonds"
By ANDREW BARY
subscribers online.wsj.com
excerpt
>Take Lucent Technologies. It has nearly as much cash -- $5.4 billion -- as it does debt and preferred stock -- $6.8 billion. Lucent's long-term debt, however, yields around 15% and its 8% convertible preferred stock trades for 40 cents on the dollar and yields over 20%. Lucent is expected to lose about $2.4 billion, or roughly 70 cents a share, in fiscal 2002 (ending September 30), on $13 billion in sales, and to operate in the red in the next fiscal year. But the company is expected to end fiscal 2003 with $2 billion in cash, buying it time until an upturn comes in the telecom equipment sector. Lucent's senior debt could be money good and its preferred, at a minimum, offers a high-yielding alternative to Lucent's common stock, trading around $1.50.
Lucent's rival, Nortel Networks, also is on the ropes. Nortel is expected to lose money in 2002 and 2003, and its stock trades for just under $1 a share. Nortel's balance sheet doesn't look bad with $5 billion of debt and nearly $5 billion of cash. Yet its 4.25% convertible debt trades for under 40 and yields 24%. That issue could offer a favorable risk/reward in anything short of a disastrous bankruptcy.[snip] |
