Newsletter

Trading Alert- Level 3 Communications

June 19, 2003
Volume VI, Issue 59
Email : info@otcjournal.com
URL : http://www.otcjournal.com

To OTC Journal Members:
 

Level 3 Trading Alert- (NASDAQ: LVLT)

Shares of Level 3 Communications made a nice surge in mid May. The shares had been hanging in around the $6 level, and made a run to $7.50 when the company announced an unexpectedly strong March quarter. The company announced $114 million in profits off $1.25 billion in sales, up from a loss of $357 million on $945 million in sales the previous quarter. The company would have made an additional $10 million if they hadn't had to make certain interest payments.

As you can see from the chart, Level 3 made another charge today, making a new 52 week high of $7.90. The company disclosed today that it wouldn't be paying $254 million in quarterly interest charges any longer- annual interest payments were reduced by $41 million thanks to the conversion of $500 million of debt into equity.

The former debt holders included Longleaf Partners, Legg Mason, and Warren Buffet's Berkshire Hathaway. Therefore, the venerable Oracle Of Omaha, Warren Buffet, has now officially become a shareholder in Level 3 Communications.

The stock retreated from the early high print of $7.90, and now seems to want to hang around the $7.50 level.

Level 3 made headlines last year when it became the only "dot-com" to receive an investment from Warren Buffet in the form of a convertible note. Apparently, Buffet knew what he was doing. He now owns the stock at $3.41 minus the interest he has collected. He only put in $100 million; chump change for Buffet. After last quarter's performance he might wish he had invested more.

In my opinion, Level 3 is the premier facilities based provider of internet services in the world. Their facilities are state of the art, nearly like a "clean room" environment. If fact, in the interest of full disclosure, I inform that the email you are receiving originated from our network, which resides in an underground Level 3 facility. I can also tell you from personal experience their service is impeccable, as opposed to other services I have employed in the past which shall remain nameless.

Level 3 is a phenomenal turn around situation. It took 2.5 years to complete the "end of the beginning" for Internet companies. Phase two of growth in the internet is underway. The internet index is up 54% since early March. eBay (NASDAQ: EBAY) has nearly returned to pre bubble levels on the strength of real earnings. Other internet flagships- Amazon, Yahoo, etc have rocketed up the charts. I believe Level 3 will do the same on the strength of a dominant market position and real earnings. 

Here are my thoughts on Level 3:

  • Buy Level 3 now- I like the stock and I like the September 7.50 calls at about $1.
  • Price Target- $25 over the next year (this would take it back up to 50% of the March 2001 level)
  • Stop Loss- $6.30- the 50 day moving average. As long as it stays above this level, it is still in a short term uptrend.
I'm not sure where this stock will be next week, but I believe this stock should be a core holding in the moderate risk growth end of your portfolio for the long term. The trend here both fundamentally and technically is awesome.

So far, I have only purchased 10 LVLT 7.5 September calls at $1, but intend to add to my position. This should be viewed as a potential conflict of interest.
 


Charts Provided Courtesy Of TradePortal.com
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