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Technology Stocks : Nortel Networks (NT) -- Ignore unavailable to you. Want to Upgrade?

To: Stocker who wrote (11751)	9/6/2001 5:52:50 PM
From: Kevin Rose	Read Replies (1) \| Respond to of 14638

I'll take a stab at a value argument. I am not making a recommendation to buy; I happen to still have a position here, but am not adding to it (though looking at LEAPS). Facts: Reduction of cost basis to around a $20b/yr top line (a reduction from 2000 $30b and 1999 $22b). Superior products but lame duck (some would say incompetent) management. Market is assuming continuation of deteriorization of market for NT products (beyond the already mentioned $20b). Cash questions, somewhat alleviated by recent financing. DIvesting itself of fringe and less profitable businesses. Price/sales of .86 (TTM) and 1.17 (assuming $20b rev). Value argument: NT is being depressed by a number of factors: - The Market (ain't everyone) - Distrust of lame duck management - Cash woes - Declining market with no apparent stabilitization - Woes of NT's customer base (telcoms, etc) A value play argument would make the following assumptions: - Top line stabilizes at ~$4.5b this quarter and recovers slightly to projected $20b/yr. - Roth gone and someone credible comes in. - Broader market bottoms and drags for next quarter (Q4), signs of improvement for coming quarters. When the above happen, NT will be seem as a value play by the bigger value players. Recovery to a price/sales of, say, 2 (a recovery growth stock) would put NT at around $13 US. Given the above, could be a reasonable Jan 02 target. What is the downside scenerio from here? Continuing shrinkage of market, say $18b, indicating stabilization around a quarterly top line of $4b. Loss of market share to drawer-dropping wounded bear LU and ruthless (Rothless?) CSCO. Price/sales drops to .5 on $16b = $2.66 US. Nightmare scenerio: HP/Compaq-style merger that loses 30% after announcement, resulting in NT $2 US. Make your own assumptions. Risky play, but could pay big. If you are REALLY a gambler, take a look at Jan 03/04 LEAPS. The $10 03 calls are going for $.70... ps Two key capitulation observations. The NT stock joke making the rounds, and lack of any HAHAHAHAs from JP...