360 Degrees of Level 3

Jim Cramer, Helene Meisler, Cody Willard, Alan Farley and Joe Wana examine the communications provider from all angles.
Author:
Publish date:

Editor's Note:

TheStreet.com

has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better investment decisions. In that spirit, we bring you "360 Degrees."

This weekly feature is designed to take advantage of our stable of reporters and contributors, who will offer analysis of specific stocks from all angles -- fundamental vs. technical, short-term trader and long-term investor.

Today's subject,

Level 3 Communications

(LVLT)

, was chosen by our readers

last week; please see our poll below to help determine the next stock to get the "360 Degrees" treatment.

Click for information about a free trial to

RealMoney.com.

Big Claims and Fast Money by Joe Wana

While I believe that shares of Level 3 Communications can go higher, its recent rapid rise makes me cautious -- a lot of shareholders may be fast momentum money.

On the positive side, Level 3 is a solid play on content delivery via Internet protocol, including voice, data and video. However, the growth projections the company provided at its analyst day on industry demand, while reachable, were on the optimistic side. It expects demand for transport services to grow 10% to 40% a year, demand for IP services to increase 50% to 70% a year, VoIP 50% to 70% a year, and Internet video by 75% in 2006.

There's Gold in Them There Data Lines by James Cramer

Level 3, like

Broadwing

(BWNG)

and

Qwest

(Q)

, is a recovery situation. While not perfect, it's able to keep rallying simply because it isn't going out of business and can grow revenues.

I don't think people realize how profitable high-speed data lines are turning out to be. I know there is plenty of analysis that says this company is worthless, but I would tell you that such analysis does not take into account that the company has been able to refinance and stretch out payments and grow its cash flow, which is now at a two-year high.

Sell Into Strength by Helene Meisler

Level 3 broke out of a big base a few weeks ago when it jumped from $4 to $5.50, and on volume. However, it immediately dropped back. On a longer-term basis, the chart shows a lot of resistance at $5.50-$6, and the base measures to $6-$6.50 (the high of the base, $4.25, minus the low of the base, $1.50 is $2.75. Adding $2.75 on to the breakout at $3.75 gets $6.50).

I'd say it came right into its resistance zone when it got to $5.75 recently. It will likely rally again as it tries to fill the gap. I'd sell into strength at resistance or near the target zone in the $6 area.

I recommended this stock in January in my newsletter,

The Street.com Top Stocks

. I clearly sold too soon, but all of a sudden this stock has gotten a lot of press and is being hotly debated all over. The mere fact that a $5 stock is so hot now probably tells us we're not early in the rally on this one anymore!

It Seems to Have Turned Around by Cody Willard

Level 3 just may have figured out how to make it work. Management has had a terrible time trying to keep the shareholders from being wiped out, but the business seems to have finally turned, and sustainable cash flows are a bigger possibility -- I think they've pulled it off.

I'm not going to chase Level 3 now, but I'd be more of a buyer than a seller from here on out.

Not Worth Buying Now by Alan Farley

Level 3 is still chopping around in a long trading range that reached its high at $7.82 over four years ago. While it's great to play this old-dog stock for short-term profits, it's a major mistake to believe it will return to its glory days anytime in the near future.

Right now, the stock is roughly 2 points from hitting a major resistance level once again. If you're long, that would be a great place to take profits. If you're still on the sidelines, the reward-to-risk profile just isn't worth an entry now. I'd avoid all new positions at this time.

Joseph Wana is founder and president of Naga Capital Management. At the time of publication, Wana had no positions in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

Jim Cramer is a director and co-founder of TheStreet.com. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for

Action Alerts PLUS. While he cannot provide personalized investment advice or recommendations.

Helene Meisler writes a technical analysis column on the U.S. equity markets and updates her charts daily. At the time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney.

He also produces a premium product for TheStreet.com called

The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns. At the time of publication, the firm in which Willard is a partner had no positions in any of the securities mentioned in this column, although positions can change at any time and without notice. None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person.

Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

Also,

click here to sign up for Farley's premium subscription product The Daily Swing Trade.