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October 20, 2004

Buying Lucent Technologies

Northlake is buing Lucent Technologies shares for clients. Our investment thesis closely on LU closely tracks our view of Motorola: Both companies botched things badly and lost market share and competitive position. Both also have changed management and shown several quarters of improved results that have been greeted with skepticism. In general, I look for stocks that are off Wall Street's radar screen. However, if I see a situation where my bullish viewpoint is at odds with conventional wisdom I will buy widely followed large cap stocks. MOT and LU fit this profile....

My fundamental thesis on Lucent is that the company is well positioned in three areas of telecom capital spending that are growing: wireless, VOIP, and fiber optics. The company's troubled history and balance sheet issues have been so thoroughly analyzed that I believe they are no longer a major headwind for the shares.

Lucent reported earnings before the open on Wednesday, October 20th. I found the results and conference call to be encouraging from a fundamental standpoint and I think if the market cooperates, a move toward the July highs ($3.80) is likely.

The quarter showed continued good results in Lucents mobility business, where the company has a leading position in CDMA technology which is used in the US by Verizon Wireless and CIngular. CDMA is also a popular technology in growing Asian markets.

I think management communicated conservative fourth calendar quarter guidance. An important part of the story for LU shares is for managment to set realistic goals and meet them. Over time, this will build confidence and allow the valuation to expand as earnings grow.

Posted by Steve Birenberg at October 20, 2004 09:33 PM in LU