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 or Stephanie Link.

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 $62.1 million.
  • LVLT has traded 652,381 shares today.
  • LVLT traded in a range 203.4% of the normal price range with a price range of $1.91.
  • LVLT traded below its daily resistance level (quality: 8 days, meaning that the stock is crossing a resistance level set by the last 8 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. Currently there are 7 analysts that rate Level 3 Communications a buy, no analysts rate it a sell, and 8 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 $9.0 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 1.91 and a short float of 5.3% with 3.72 days to cover. Shares are up 18.2% 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 solid stock price performance, impressive record of earnings per share growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and weak operating cash flow.

Highlights from the ratings report include:
  • Powered by its strong earnings growth of 123.07% and other important driving factors, this stock has surged by 89.76% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • LEVEL 3 COMMUNICATIONS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, LEVEL 3 COMMUNICATIONS INC continued to lose money by earning -$0.50 versus -$1.97 in the prior year. This year, the market expects an improvement in earnings ($1.12 versus -$0.50).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.1%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Net operating cash flow has declined marginally to $386.00 million or 3.50% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, LEVEL 3 COMMUNICATIONS INC has marginally lower results.
  • The debt-to-equity ratio is very high at 5.93 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LVLT maintains a poor quick ratio of 0.91, which illustrates the inability to avoid short-term cash problems.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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