Alcatel-Lucent has all of the makings of an excellent turnaround story. Then again, this has been said for three years. This time there is evidence that things are beginning to fall in place. The stock gained over 80% in the last three months of 2012, which means that the Street is starting to believe.
Still, at a current price of $1.69 and a P/E of 3, it can be argued that pessimism lingers. The company is expected to lose money this year -- that's not a surprise. However, with a recent financing pact worth $2.1 billion, ALU has just been given time to get its house in order. This now gives the company some flexibility and latitude to extend maturities accordingly.
The good news is with liquidity concerns behind the company (for now), ALU can begin focusing on execution and figure out ways to render its good market share into shareholder value. With some recent upgrades under its belt, there are now a few more catalysts making the stock more appealing.For instance, despite competitive pressures from more prominent names such as Cisco, many still underestimate that ALU's IP and optics business is trending higher. Too, its newest routing platform competes extremely well to similar models from Cisco as well as Juniper, and in some cases it's even better. Likewise, ALU has an impressive CloudBand strategy that rivals that of some of the more prominent names in the industry, including Cisco. For this reason, I wonder how long it will take before Cisco realizes it needs to acquire ALU. Beside, recent acquisitions, which includes paying $141 million in cash for Cariden and another $1.2 billion for Meraki suggests Cisco will leave no stone unturned to produce growth. What's more, with the cloud market expected to grow to $177 billion over the next three years, it would be foolish for Cisco not to consider acquiring Alcatel-Lucent, especially now since ALU can be had for pennies on the dollar. For that matter, it would also be foolish for investors not to consider ALU. At the time of publication, the author held no position in any of the stocks mentioned. Follow @rsaintvilus This article was written by an independent contributor, separate from TheStreet's regular news coverage.