ADC Telecommunications: Upside exists, but so does high risk

ADCT's stock corrected more than expected in the second half of 2009, but the deep correction can partially be explained by year-end profit-taking by short-term institutional investors (IIs): the stock approached $10 in the summer after bottoming near $3 earlier in 2009.

Hence, the recovery thesis remains in-place: look for a revenue increase in 2010, boosted by broadband spending and robust equipment demand in China. The First Call FY2009/FY2010 EPS estimates for APSG are 28 cents to 49 cents.

However, the stock's behavior changes the risk rating: ADCT is now a high-risk stock, a downgrade from moderate risk. Had ADCT traded above $10 for more than three months, no downgrade would have occurred: it performed well under those expectations. Hence, ADCT is not for low/moderate risk investors: don't Buy ADCT if you can't tolerate the unexpected.

Stock Analysis: ADC Telecommuncations' is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in ADCT now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ADCT position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $3.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.