On some occasions, when a CEO is fired and a fresh face is ushered into the corner office of a public company, you can legitimately view it as a contrarian buying opportunity as the market goes into a panic-selling mode.

But if you think the housecleaning of the top brass at scandal-laced Nortel Networks is a buying opportunity, think again.

If you’ve been backing up the truck at Nortel, you’ve got some kind of guts – and maybe a few shares of Enron and Bre-X kicking around.

The axing of CEO Frank Dunn and his top two financial sidekicks “for cause” could be the tip of the iceberg in a story that won’t go away for a long, long time.

So, as an investment, that makes it a crapshoot.

If you bought the stock thinking that new CEO Bill Owens, once the second highest-ranked officer in the U.S. military, will whip this company into shape in no time flat, be prepared to hunker down for a long haul.

If Nortel’s accounting issues are resolved, then the company still faces a daunting challenge in restoring investor confidence. Again. Snake-bitten investors have long memories (except for those who bought Nortel at $100 four years ago, sold at $1 two years ago and bought again at $12 before the recent crash to $5 under Dunn).

When a CEO of one of Canada’s largest corporations gets fired, you’d better believe that something is terribly wrong and even potential criminal action should not be ruled out. Remember, this is a country in which bungling CEOs are traditionally punished with hefty raises.

Yet, with Nortel saying it will restate financial results going back to 2001 and its accounting mess under investigation by regulatory agencies in Canada and the U.S., some of the pros on Wall Street and Bay Street were actually trumpeting the stock as a buying opportunity.

As Dunn, chief financial officer Douglas Beatty and controller Michael Gollogly headed out the door, CNBC’s outrageous analyst James Cramer was trumpeting Nortel as a buy and at least three analysts were actually upgrading the stock to a buy. Besides Cramer, analysts at three firms – Griffiths McBurney, TD Securities and CIBC – were upgrading the stock, which dropped to $5.40 on the TSX, down 28.8 per cent, on the day of the news.

Yet, a noted contrarian who was loading up on Nortel under $2 at a time when just about everyone else was throwing in the towel doesn’t have the stomach to jump in this time.

Josef Schachter, a renowned Calgary analyst who loves to buy out-of-favour stocks, hit a Nortel home run, buying in the $2 range in 2002 and selling last year in the $7 to $8 range (at one point, he touted Nortel at $1.66 to Edge readers in 2002).

Yet, Schachter views this latest Nortel selloff as a potential falling knife. Indeed, there are more red flags at Nortel than at a Flames’ game. There are too many unanswered questions, too much risk.

“You could see Nortel becoming a $4 stock before long, at which point I’d consider looking at it for business risk-oriented accounts,” said Schachter, president of Schachter Asset Management. “I sold a little early, but I’m happy with the time I got out. When the stock went to $11 and there was all the euphoria over Nortel, I didn’t have the guts to short it.”

Schachter says he now won’t even consider buying Nortel over $4. “It’s going to take a long time to clear up this accounting mess, it’s going to take a long time to get investor support again and it’s going to take time for Nortel to get customer support. Their customers will be nervous about doing business with them.”

Nortel wasn’t saying what it planned to do about lavish bonuses awarded to senior management in the past year for incentive targets that may not have actually been reached. It appears now that Nortel was not profitable as the company had reported in the first six months of last year.

Dunn was awarded a bonus of $2.1 million US last year based on financial results that now are being restated.

“The fact they put him (Dunn) out to pasture is justified, but now I think he should give the money back,” muttered Schachter. “Nortel is in the penalty box and I think it’s going to take some time for them to get out.”

SAGE WORDS: “If the purpose of the newspapers is to scare enough Canadian investors off of owning Nortel, then Nortel will become an American-owned company in no time at all. The trashing of Nortel by the Canadian press isn’t doing Canada any good.”

– Former Nortel CEO John Roth, March 27, 2001, with Nortel trading at $25 en route to $1.



HOT STOCK: AccelRate Power Systems
APS-TSXV $1.15
Up 39 cents (+51.3%) on 671,650 shares (for week ending April 30).
If you were waiting for the battery to go dead on this high-voltage play, you missed your bus out of town. AccelRate, a Vancouver tech company whose shares have been boosted over a nifty battery charger, defied gravity by advancing seven consecutive days without pulling back. And it did so without a peep of news from the company.



COLD STOCK: Nortel Networks
NT-TSX $5.15
Down $2.66 (-34.1%) on 230,763,939 shares (for week ending April 30).
How bad is it at Nortel? Even the widows and orphans were hanging up on their positions. The telecom giant had more than $8 billion chopped off its market cap as the accounting fiasco heated up on the firing of the top brass. And the stock ended the week by crashing through a key technical support level of $5.26.