Thursday, February 16, 2012

Is it Time to Hang up on Sprint-Nextel, Alcatel-Lucent and Nokia (NOK, ALU, S)

The history of tech stocks in the field of communications such as Sprint-Nextel (NYSE: S), Alcatel-Lucent (NYSE: ALU) and Nokia Corporation (NYSE: NOK) recovering from small cap price levels to rebound to blue chip ranges is not promising.? Recent earnings reports and the balance sheets of each present daunting obstacles.? In addition, the strategies of survival for each are raising profound concerns among investors.

These concerns have certainly played out in the stock price of each company.? Over the last year, Nokia has fallen more than 54%.? During the same period, Sprint-Nextel is down more than 45%.? Alcatel-Lucent is off more than 45% over the last 52 weeks, too.

The amount debt that each carries should be of grave concern to investors.? Avoiding debt is one of the major tenets of Warren Buffett in investing.? Not so for Alacatel-Lucent, Nokia Corporation and Sprint-Nextel. Each has a very high level of debt.? Alcatel-Lucent has a debt-to-equity ratio of 1.61.? Sprint-Nextel has a debt-to-equity ratio of 1.42.? Nokia Corporation has a debt-to-equity ratio of 1.63.? By contrast, Berkshire Hathaway (NYSE: BRK-A), Warren Buffett's company, has a debt-to-equity ratio of 0.38.

All of this debt would not be of concern if the companies were profitable.? After all, that is what private enterprise is all about.? A profit margin of 20% is considered to be healthy.? Sprint-Nextel (S) has a profit margin of a negative 7.57%.? Alcatel-Lucent has a profit margin of 3.82%.? Nokia Corporation (NOK) has a profit margin of a negative -3.85%.

A recent article in The Economist magazine detailed how difficult it is for a high tech company to rebound.? The focus of the article was Research-in-Motion (NASDAQ: RIMM) and its slide.? Discussed was how another Canadian high tech, Nortel Corporation, once a darling of the communications industry, went bankrupt. At one time, according to the article in The Economist, Nortel had a market ca! p of ove r $200 billion.

Each company has a strategy for survival.? Nokia Corporation is banking on sales of the new Windows smartphone.? Sprint-Nextel is paying a very dear price for the iPhone 4S to bring it back.? Based on the stock performance of Alcatel-Lucent (ALU), Sprint-Nextel (S), and Nokia Corporation (NOK), Wall Street does not think it is working.



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