Will Lucent go for broke?
The tough times for Lucent Technologies (LU) have been well documented. The company’s stock has been decimated, off 90% from its highs, massive layoffs and a "junk" debt rating. Add to the mix the failed $23 billion merger with Alcatel, and what you have is an awful mess.
But the real question is this: Will Lucent go bankrupt?
Hilary Kramer of the Cisneros Group says absolutely not, citing the recent sale by Lucent of over $1 billion in convertible preferred bonds, giving the company some much needed cash. She says to stick with the stock if you are a current holder, noting that Morgan Stanley has a price target of $11 and Lehman Brothers a target of $18. "But don’t expect this stock to get to the $60-$70 level again," says Kramer. She mentioned that the layoffs have killed what was the key component of Lucent: research and development.
Jonathan Hoenig from Capitalist Pig Asset Management says to "buy when there is blood in the street," and that we might be there with Lucent. For a short-term play, Jonathan sees Lucent as a possible opportunity, as the news for the company probably can’t get any worse. He thinks the stock could get a bounce at the start of next year.
Dagen McDowell, reporter for SmartMoney, sees an investment in Lucent as nothing more than "dead money."
Bryan Piskorowski of Prudential Securities simply asks: "Why get involved?" The stock is cheap, but the fundamentals just aren’t there, and he wonders if it is worth it to invest in the company.
Next, the panel offered their Mad Money plays - high-risk stocks that could make a big move up, but could also fall hard:
Hilary: American Express (AXP)
Bryan: Micron Technology (MU)
Dagen: Dresdner RCM Global Health Care (DGHCX)
Jonathan: Dow Jones Real Estate iShares (IYR)
Mutual Fund Face Off
Topic: A Vanguard showdown. A viewer recently sent a question asking about two specific Vanguard funds: the Vanguard LifeStrategy Moderate Growth Fund (VSMGX) and the Vanguard Capital Opportunity Fund (VHCOX) We put it to our panel to figure out which fund is worth your while.
Panel: Dagen McDowell of SmartMoney and Jonas Max Ferris of Maxfunds.com.
Dagen: Vanguard LifeStrategy Moderate Growth
Jonas: Vanguard Capital Opportunity Fund
Actor and food-fanatic Dom DeLuise wants to know about pork bellies. What are they? Why do they go up and down?
We asked Jonas and Hilary about pork bellies, and whether or not commodities deserve a place in your portfolio.
Jonas explained that pork bellies were essentially the bellies of live hogs which eventually become bacon, and their value goes up and down with supply and demand. He explained that when you buy commodity futures like pork bellies, you are betting on the future price of a specific commodity such as pork bellies, gold, oil, etc. It's a complicated and risky way to invest and he doesn't think the average investor should even try. But for those who are really looking to broaden their investment portfolios and want exposure to commodities Jonas offered the names of two mutual funds that invest a portion of their assets in commodities as perhaps the "safest" way to play the risky sector.
Oppenheimer Real Asset Fund (QRAAX)
Van Eck Global Hard Assets Fund (GHAAX)
Hilary points out that you don't have to turn to commodities for diversification. There are plenty of other types of investments you can make to broaden your exposure beyond just stocks and bonds:
Cash - You can get solid returns of 3%-4% in money market accounts and CDs (certificate of deposit).
Real Estate - The home you live in is an investment.
REITs or Real Estate Investment Trusts - These are bundles of real estate properties that trade like stocks on a stock exchange. She notes that 90% of the revenues that come in through REITs have to be distributed to shareholders in the form of dividends so they can be good for those looking for income-generating investments.
Collectibles - Stamps, coins, whatever your fancy. These are not typical investments that provide a steady revenue stream, but the dividends can come when you sell to the highest bidder.
Dagen and Jonathan wrapped up the show by answering some email question from viewers. If you want to have your question answered during the "Money Mail" segment, email us at firstname.lastname@example.org.
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