disappointed Wall Street analysts again Tuesday night, but the managers of your stock funds may have dumped all or most of their shares already.
The telecommunications-equipment titan
warned after the market close Tuesday that its fourth-quarter earnings will fall far short of analysts' estimates in just the latest in a series of earnings warnings from the stumbling behemoth. The stock fell more than 20% in after-hours trading and looked poised for a precipitous drop Wednesday. Through Monday's close the stock was already down more than 50% on the year.
While the stock is hurting plenty of individual investors who own it directly -- Lucent spun off from widely held
with high hopes in 1996 -- fund managers have been fleeing in droves this year.
"I think a lot of growth
fund managers have left in the last year," says Jim Grefenstette, co-manager of the
Federated Large Cap Growth fund, which has a modest position in the stock, and the
Federated Growth Strategies fund, which doesn't own it.
Indeed, on March 31, large-cap growth funds owning Lucent shares numbered 399, according to
. But by Aug. 31 that number had tumbled to 151. During the same five-month stretch, the number of tech funds owning shares dropped from 92 to 52.
Initially investors had high hopes for the company. It appeared to be standing in the path of significant demand as the world's communications networks upgraded to carry voice and data more quickly.
Unfortunately, the firm has sputtered. Small, nimble rivals have outmaneuvered the massive shop, which has consistently lost market share.
"Just about everything they do has been done better by some small, newer company. They're not really the best at anything they do. When that happens your brand name just doesn't get you far," says Don Luskin, manager of the
OpenFund. Luskin has skipped Lucent, favoring quicker competitors like
, where 1.7% of his fund is invested.
Many other funds have invested in rival networkers, which could fall a bit in sympathy on Wednesday but shouldn't stay down because Lucent's problems appear to be company-specific.
"I suspect some people will take this as an indictment of the group, but I'd urge them not to conclude that Lucent's problems are industrywide," says Morningstar stock analyst Jay Ritter, who covers Lucent and other networkers. "We don't think this is cause for panic and our long-term outlook for the industry is good."
While funds that own Lucent's competitors might not get rocked on Wednesday, those with significant Lucent stakes will probably be smarting. Given the stock's steep drop this year, figuring out which funds still own shares isn't easy. More than 700 funds still own shares, including some with some fairly big bets as of their most recent portfolio report.
In many cases, value managers -- the stock market's bargain hunters -- have started to look at Lucent's sinking shares. In an Oct. 2
John Hancock Large Cap Value fund manager Tim Quinlisk explained that he owned the stock because the worst might be over. At the end of August his fund had a 4.8% bet on Lucent. Quinlisk wasn't immediately available for comment Tuesday evening.
It appears that even Lucent's believers are losing faith. At the end of the second quarter, the three fund shops with the biggest Lucent stakes were
, according to
, a Web site that tracks institutional ownership. Two of the three sold shares in the second quarter.
Of the five funds that have sold the most Lucent shares this year, four are run by Fido managers:
Fidelity Growth & Income,
Fidelity Dividend Growth and
Fidelity Magellan, according to Morningstar.