Sale of Alcatel Lucent Provides Nice Profit, Takes Away Future Worries

It's usually a nice day when a portfolio holding company is acquired. Of course, if the stock was already sold, sometimes we miss out on additional gains, which could be problematic. 

One of the most talked about stocks recently has been Alcatel Lucent (ALU) and their proposed merger with Nokia (NOK). Under the merger, Alcatel shareholders will get 0.55 share of the new company for each share they earn. I see this as a loss for shareholders, as the combined company will struggle with competition from other companies and could struggle to post growth in revenue going forward. 

The rumors of Nokia buying the company popped up earlier in April and that is when I issued a warning to investors that it might be time to sell at least a partial stake in Alcatel as the "Buyout premium has minimized". Shares were up 54% when I issued the warning, so an immediate sale would have missed out on a marginal gain, but minimized the downside substantially.  

At that time, I sold the entire stake in Alcatel in two chunks prior to the final announcement from Nokia. The sales were:

Sold 400 shares at $4.91 each for a 60.0% gain

Sold 450 shares at $4.04 each for a 31.7% gain

After the merger announcement, shares of Alcatel headed south. Analysts like BMO, Citi, Crag-Hallum, Bernstein, and Natixis all came in with downgrades and lower price targets.

It appears I made the right call with the sale. Shares trade below $4 today and continue to be depressed from the merger. The 52 week high for shares was $4.96. Now there is a chance that Alcatel will see a bigger bid from Nokia or shareholders could block the bid and want something higher. Either way, I don't think it's worth trading along side. That's why I was more than happy to take my gains and invest the money elsewhere. 

I bought shares back in September at 52 week lows ($3.07) and said that several big deals were coming. I also saw a $3 stock that was significantly undervalued that should trade closer to $5. That ended up being true, although short lived. 

The old saying is bulls make money, bears make money, pigs get slaughtered. Sometimes its important to follow a subscriber service like Stocks Under $20 for guided research and precise buy and sell alerts. 

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Posted to Stocks Under $20 on Apr 27, 2015 — 4:04 PM
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