Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified

Level 3 Communications

(

LVLT

) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Level 3 Communications as such a stock due to the following factors:

  • LVLT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $94.5 million.
  • LVLT has traded 2.1 million shares today.
  • LVLT traded in a range 222.2% of the normal price range with a price range of $2.26.
  • LVLT traded below its daily resistance level (quality: 176 days, meaning that the stock is crossing a resistance level set by the last 176 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on LVLT:

Level 3 Communications, Inc., together with its subsidiaries, operates as a facilities-based provider of a range of integrated communications services primarily in North America, Latin America, Europe, the Middle East, and Africa. LVLT has a PE ratio of 48. Currently there are 8 analysts that rate Level 3 Communications a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Level 3 Communications has been 1.7 million shares per day over the past 30 days. Level 3 has a market cap of $18.5 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 1.39 and a short float of 1.7% with 2.08 days to cover. Shares are up 6.3% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Level 3 Communications as a

hold

. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.

Highlights from the ratings report include:

  • The revenue growth greatly exceeded the industry average of 3.6%. Since the same quarter one year prior, revenues rose by 27.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Diversified Telecommunication Services industry average. The net income increased by 8.9% when compared to the same quarter one year prior, going from $112.00 million to $122.00 million.
  • LEVEL 3 COMMUNICATIONS INC's earnings per share declined by 25.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LEVEL 3 COMMUNICATIONS INC turned its bottom line around by earning $1.24 versus -$0.50 in the prior year. This year, the market expects an improvement in earnings ($1.73 versus $1.24).
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, LEVEL 3 COMMUNICATIONS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.

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