Will the Biggest Technology Losers Remain the Biggest Winners?

By Brian Nichols - November 29, 2012 | Tickers: ALU, BBRY, NOK | 0 Comments

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Back in the first quarter of 2012, the markets rallied as a result of movement from the large cap depressed companies that had fallen in the final six months of 2011. These stocks were presenting deep value and therefore it made sense that they traded higher to reflect fundamental performance.

In the last couple months we have seen a strange occurrence of stocks with deep fundamental and valuation loss trade higher. This leads me to wonder if these stocks will continue to trade higher, or if this is simply a false rally. In this article, I am looking at three of the biggest tech losers that have recently reversed the trend.

*gains are shown from the individual dates to the left of the column

Analysts “Buy” and Investors Await Blackberry 10

Despite Research in Motion’s 46% gain since Oct. 31, the stock is still trading with a 32% one-year loss, and a near 91% loss over the last five years. The company has no doubt lost market share to Apple’s iOs and Google’s Android operating system. However, Research in Motion has rallied ever since announcing and showcasing its new Blackberry 10, which is being tested by over 50 carriers.   

Since Oct. 31 the stock has seen a slew of upgrades. However, I tend to agree with Morgan Stanley’s Ehud Gelblum who suggested that investors should take profits as the odds are stacked against the Blackberry maker. Research in Motion’s rally has been very strange, occurring as Apple sells out of iPhone 5’s. To me, Research in Motion still looks like a distant third, or fourth, with its near historic technology. I just can’t see the upside, nor the bottom to its stock.

Nokia Rallies with RIMM As Excitement Builds Around the New Windows Phone

Almost simultaneously with Research in Motion, Nokia sparked a rally of its own for what appears to be the same reasons. Investors anxiously awaited Microsoft’s new Window’s phone due to rumors of a sleek new design with operational upgrades and new apps. There were countless reports that the Lumina 920 had been selling out in German/European stores, therefore sparking even more optimism for this troubled stock. When you combine this optimism with several reports showing growth in Nokia’s smartphone global business, or the potential for growth, investors were willing and ready to buy.

Much like RIMM, Nokia’s short-term gains are small compared to its 42% loss over the last year. The company’s rally really began on July 19, increasing its gain to 90%. However, the company still faces the same operational problems that it encountered last year, with falling revenue and mounting losses. The Lumina 920 might have given the company a boost, but in my opinion, there are no noticeable fundamental changes, it was simply bouncing off the bottom of a five year loss.

Alcatel-Lucent Planning for the Future Instead of Spending Money for Today

Alcatel-Lucent, also in the telecom/technology business, has seen a recent boost after a five year loss that mirrors that of both Research in Motion and Nokia. The company’s stock first popped after details regarding a financing deal with Goldman Sachs was released. According to the report, Alcatel-Lucent is looking to unload some of its lagging segments, which stretch across 130 countries, and raise up to $500 million. The company is also attempting to monetize its near 30,000 patents in an attempt to become a more efficient and more profitable business.

Alcatel-Lucent is a company that I monitor very closely, a company that has announced good news after good news over the last few months but can’t seem to gain any traction. However, this time, I think it will be different. If the company can unload some of its lagging segments it can become profitable with strong margins that mirror its competitors in the industry. The company is also the largest customer of AT&T, and with AT&T increasing its spending by $3 billion each year for the next three years, Alcatel looks well positioned to benefit. The company is valued at just $2.5 billion and has nearly $19 billion in sales, therefore the potential for upside is great, even if it loses 10% of its top line.

Conclusion

Investors have been trying to find the bottom of these stocks for the last two years. With Nokia and Research in Motion it looks as though a temporary bottom has been found, but in regards to Alcatel-Lucent, the stock might just be reaching that level. Either way, these are all stocks that have outperformed the market during the noted periods. The question that remains is whether or not they will continue?

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