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2HRS2GO: WorldCom starts to revive

COMMENTARY--The cheers from trading floors can be heard through stock charts of the last two days: Go, WorldCom, Go!

While Wall Street yesterday piddled on the overall landscape for equities, shares of WorldCom (Nasdaq: WCOM) defiantly rose 8.2 percent after CEO Bernard Ebbers reassured the audience at an investment conference.

The Ebbers empire remains ahead of the market today. WorldCom was up more than 9 percent in the early afternoon, far past the Nasdaq Composite Index's gain of less than 2 percent.

Nothing has really changed for the communications giant. Ebbers did little more than reiterate previous guidance, which is why the company didn't bother putting out a news release.

Yet that was enough to boost WorldCom shares while a communications-related company like Comverse Technology (Nasdaq: CMVT)--which stuck with consensus estimates just as WorldCom did--tumbled near its 52-week low. Why the difference?

The pat answer is that WorldCom investors expected far worse than what they got, given the preponderance of warnings lately. Investors these days tremble whenever the CEO of a big-time company addresses the public; when Ebbers did not lower projections, WCOM buyers were happy.

That attitude probably fueled the immediate decision to buy. But the charts also indicate a longer-term issue working in WorldCom's favor.

You don't need to be a wizard in technical analysis to see that WorldCom has repeatedly bounced off the low- to mid-teens since November. Unless the world stops using phones and data lines completely or Ebbers goes insane--the man may be many things, but crazy isn't one of them--there simply isn't any reason for the stock to go much lower than its Tuesday closing price of $15 and change.

Wall Street seems to have settled on a bottom not just for one business, but for a select group of communications service providers. Look at Sprint (Nasdaq: FON) over the same period:

If that line were any flatter, you might be tempted to call for a defibrillator. Except that in this case, flat isn't a bad thing; it surely beats being shocked into a downward slope.

One of the commonly expressed themes of this recession has been Blame the Telecom Companies. Without going into detail about overbuying in the first half of last year, dot-com collapses and capital markets drying up, suffice it to say that sales for communications providers were among the first to slow down; their problems, combined with the PC downturn, rapidly sucked energy out of the tech industry.

Granted, it is a simplistic view, but it serves well enough as a quick synopsis. The stocks' recent history confirms that overview; with the notable exception of Qwest Communications (NYSE: Q), nationwide long-distance stocks cratered in the late summer and early fall ahead of the broader market, which continued on a gentler decline.

AT&T, WorldCom and Sprint paid for their sins months before the rest of Wall Street purged itself.

And just as those telecommunications giants fell ahead of the market, they apparently bottomed out long before the overall market. And that's probably why WorldCom has been thriving over the last few days.

As far as investors can tell, the company won't get any worse. Or as Wall Street parlance would have it: the downside risk is mitigated, and the potential for upside benefit is strong.

In fact, the whole telecom market appears to be turning in WorldCom's favor again.

The stock of Nextel (Nasdaq: NXTL), a wireless provider that once spurned WorldCom's favors, looks weaker than ever after Nextel's warning yesterday. It might be easier for WorldCom to do a deal and fill the one gaping hole in its lineup.

Baby Bells--many folks count Qwest in that group in these post-US West days--seem to be spinning their wheels, content to take share in a long-distance telecom market that WorldCom dislikes to the point of planning to spin out its consumer unit to shareholders later this year.

AT&T is preoccupied with its own act of creative destruction to pose any serious threat right now.

And overseas rivals seem to have turned momentarily gun-shy after such a depressing 2000.

Meanwhile WorldCom, having spent the last few months laying on the floor, might be waking up again. It's a good sign for the rest of the market. 22GO>