A Look Back at Two $1.40 Stocks to Reach $2.00: Alcatel Lucent SA (ADR) (ALU), Rite Aid Corporation (RAD)

Most don’t realize the pure size of Alcatel Lucent SA (ADR) (NYSE:ALU)’s business, because of its $3.30 billion market cap. However, this is a company with almost $19 billion in revenue, and operates in a segment where most companies trade at 1.50-2.00 times sales. Therefore, if Alcatel had the 10% operating margins that other companies such as Juniper and Ericsson trade with, it would be a $30 billion company. As a result, I am very optimistic of the company’s opportunity to unload the junk from its business and to then focus on the gems of its business.

This is a company with several segments of growth that produce great margins. Therefore, even if Alcatel Lucent SA (ADR) (NYSE:ALU) loses half of its business, it would still be worth $15-$20 billion if margins become equal to the industry. The problem is that this will not occur overnight, and it will be a long and volatile road, but one that I believe will produce a $2.00 stock price by the end of this year.

Conclusion

In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I present a dozen traits that you want to find in a good value investment. These traits are then broken into “purpose” within your portfolio, as a high yield growth stock would require different indicators compared to a small cap speculative investment. Both Rite Aid Corporation (NYSE:RAD) and Alcatel Lucent SA (ADR) (NYSE:ALU) fall into the category of small cap and speculative, but are operationally large and are very close to reaching profitability. The key is that both companies notice their problems, and are taking strides to improve. This improvement, in my opinion, will ultimately lead to gains with a price far above $2.00 per share.

The article A Look Back at Two $1.40 Stocks to Reach $2.00 originally appeared on Fool.com and is written by Brian Nichols.

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