Why Alcatel-Lucent Shares Could Pop 20%

While Fools should generally take the opinion of Wall Street with a grain of salt, it’s not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades — just in case their reasoning behind the call makes sense.

What: Shares of Alcatel-Lucent  rallied 4% today after J.P. Morgan upgraded the networking equipment company from neutral to overweight.

So what: Along with the upgrade, analyst Sandeep Deshpande planted a price target of €3.30 on the stock, representing about 20% worth of upside to yesterday’s close. So while momentum traders might be turned off by Alcatel’s year-to-date price weakness, Deshpande’s call could reflect a sense on Wall Street that the company’s improvement prospects are becoming too cheap to pass up.

Now what: According to J.P. Morgan, Alcatel’s risk/reward trade-off is rather attractive at this point. “It takes time to turn around a company that has not been successfully turned around since ’06 M&A, hence our caution early in Alcatel’s restructuring plan,” said Deshpande. “With the restructuring proceeding at a faster pace than guided originally and the stock having pulled back because some investors have taken profits, not because progress has stalled, we upgrade the stock to Overweight (from Neutral).” Given J.P. Morgan’s impressive stock-picking track record — currently ranked in the top 10% of our CAPS community — value-oriented Fools might want to take a closer look at Alcatel. 

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The article Why Alcatel-Lucent Shares Could Pop 20% originally appeared on Fool.com.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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