What Path Will Nortel Take? (NT)

Nortel Networks Corp. (NYSE: NT) is one of the telecom equipment and networking stocks which just has not been able to get its act together.  It has also been unable to find any serious friends as times for the sector and the economy are going against it.  So at a time when the economy is going against it and when the company was not even able to do well when times were good for its sector, what are the company’s options?

There have been some light rumors and concerns that the company may beheading toward a protective status in Canadian and/or US courts,although this may be based more upon its stock prices than on theactual books.  We caution on using the "B" word for any public writingbecause S&P just affirmed its "B-" long-term debt ratings andbecause it has ample operating liquidity on the surface.

We featured this over the weekend in our "Under $10 Stocks" newsletterand we have panned this since many times on that letter even before itwas a sub-$10.00 stock that we thought would go back under $10.00.We opined that things were bad enough that its name could easily change to "No-Tel" based upon what we were seeing.  Well, now this is under $1.00, and not even close after closing at $0.42(US) on Friday.

The problem that management cannot shake is that they stunk whentelecom equipment was great, and they stink now that telecom equipmentstinks.  Unless Canada created its ownTARP-equivalent for Nortel, things won’t be able to get that muchbetter here no matter how much they try.  This company (and any company) can only restructure and announce layoffs so many times before there is nothing of any substance left.

What is interesting here is that with the stock so low, even on badnews for the foreseeable future it is a wonder if things can get muchworse in the immediate term for common stock holders.   Because of itsbalance sheet the company can stay afloat.   

But it will soon have NYSE listing issues because of the sub-$1.00share price, which won’t be on a moratorium forever and it can’t justeasily do another reverse stock split.  That was a dismal failure thelast time around.

For the time being, the sell-off we have seen looks very extremeconsidering the liquidity it still has.  The debt issue is alwayspresent here, so you still can’t really consider it "safe" bytraditional metrics.  Stay tuned.

Jon C. Ogg
November 24, 2008