Friday, June 6, 2008

Unstoppable

Thats one description for the stock the last 3 months. The day to day rise without gaps on both up and down days with increasing volume can only mean one thing.....Invasion! (Star Wars link there :-) I am not surprised that the stock is going up (after all, I've maintained a blog, formed a shareholder group, met with management, and even tried to go for a board seat). However I, just like other traders looking for an overall market pullback, thought UT would atleast pull back. It hasn't happened and now the price action suggests a major move upwards in the next few weeks. Lets list down some of the possible "reasons" for this move up (aside from there are more buyers than sellers):

1. Analyst meeting - UT has had so many negative things happen to it that having an analyst meeting at this juncture shows they have a very positive story to tell. This is not new to most shareholders and management had already indicated they would do so during the March 17 meeting (it is still amazingly coincidental that the meeting occurred during the market meltdown and UT hitting an all-time low of $2.23).

2. None-core divestitures - This has also long been expected and the increased external expenses (last quarter and this quarter), multiple statements of active discussions since November 2007 hint at divestitures coming very soon.

3. PAS revival - The recent positive PAS performance during the earthquake and hints of demand from their packet data (in Beijing and working on Shanghai), and renewed roaming suggests PAS decline is managable. The possibility of economic slowdown even in China may benefit PAS as 3G phones/base stations won't be cost effective in some locations.

4. Institutional purchases - It is possible that the stock is responding to shedding its penny stock label by busting through the $5 level. UT offers exposure to the iptv market, growing economies outside the US and Western Europe, and a recovering telecom sector where investments are needed to increase worker productivity. While the energy sector could be in a bubble, there is no doubt investments in broadband in India (for ex.) are very much needed and growing at a very fast sustainable clip.

5. Diversification - It has taken a long time for UT to diversify away from China and PAS and this was definitely NOT a smooth transformation but the company is actually growing their core revenues and PCD (which is not even core) has led the initial rebound.

6. Future IPTV revenue potential - Contract wins are increasing with the openning of the iptv market worldwide and UT is a significant player. The last quarter shows that most of the revenue has not even been booked!

7. Low price, low expectations, and high probability of good news - The stock is just now climbing up to All-time support low ($5.19) so its just 30 cents above. Expectations are still very low and my calculations and previous quarter performance show the company is now very conservative which allows a lot of room for positive "surprises".

8. Good balance sheet - I would have liked for them to have gotten more from Infinera/Gemdale, not spend all the added interest expenses, and even the massive amounts on the filings, investigations, internal controls but that is all completed. The company has a nice cash horde and in this environment, very comforting for shareholders not having to worry about dilutions or liquidity issues. So, the company went from the brink (perception anyway) to having a very good balance sheet.

9. Management has stocked up - I don't want to think negatively but I have to. Shareholders have taken the brunt of the sacrifice over the years and most have sold out for massive losses. Management gets more important during the turnaround and receive higher compensation and MORE options (because of the lower prices). Now that all the bonuses, and other compensation have been worked out (and even employees get to reprice their options), in some perverse way, you get the feeling we are now all on the same "boat".

10. Shorts - Facing massive losses month after month with all the above items facing them, shorts are fueling some of the move up.

There are probably others (TA, momentum, etc) but I just wanted to list some items. If I and other shareholders are correct, this is still the start of a very beautiful friendship (I think I mentioned that at $3, o well the stock was moving $2-3 a few years ago).

1 comment:

Tanveer Iqbal said...

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