Recent stock price gains are due to sentiment, rather than material changes.
Level 3 Communications (NASDAQ: LVLT, Stock Forum) is a company that has been just baffling. It has risen above and beyond our last "buy and sell trade" to the point that it is more than amazing. The company completed its ad distribution unit sale for $129 million in cash recently and two analyst calls helped that. But, they were ultimately nothing more than makeover calls than anything earth shattering like a brand new analyst with a huge target.
What Wall St mostly witnessed in the last week was a lot of CNBC hype in the stock, a comment from theStreet.com saying it should try to convert some of its debt to equity, and one massive wave of old short sellers who were forced into not being able to take the pain anymore.
Also, the Street got excited about its re-projection of "cash flow break-even" for the rest of 2008 and projections of cash flow positive for 2009. The truth is that until the debt can be taken care of, which is not really an issue for at least two or three years, and until the company is producing true profits, then this is still going to be a volatile low-priced speculator stock for the foreseeable future.
We would buy on further pullbacks, but chasing this one after a 100% gain since our initial review isn't what we are crazy about doing... particularly after closing up over 20% in the last week alone.
