Standout stocks: Nortel Networks Corp. (TSX: NT)

Another year, another stomach-churning roller-coaster ride for Nortel investors to endure. Just when it looked like the beleaguered communications equipment giant was getting its act together under CEO Mike Zafirovski, his new-look executive team and their new plan to radically overhaul the business, the old jinx returned. From a 52-week low of $21.40 in mid-August, and then another dip as low as $21.80 on Nov. 9 (adjusted for a 10-to-1 stock consolidation on Dec. 1, 2006), the stock did manage to climb as high as $37.35 on Feb. 19. Since then, though, the shares have retracted more than 25%.

It hasn't helped matters that one of CFO Peter Currie's final acts before he officially resigned April 30 was to delay filing Nortel's fourth-quarter financials by more than two weeks in March (when reported, they were underwhelming) and announce yet another restatement — the fourth in four years. As the market digested this troubling news, the U.S. Securities and Exchange Commission laid fraud charges against four former top Nortel executives, including ex-CEO Frank Dunn.

The company's future prospects — in a consolidating industry with larger competitors such as Ericsson, Cisco Systems and Alcatel-Lucent — weigh heavy on the stock. The market may be realizing just how hard it will be for Nortel to grind out its goal of expanding its operating margins by US$1.5 billion before the end of 2008, while at the same time battling fierce headwinds to grow revenues. In early May, it reiterated its guidance for 2007: flat to slightly lower revenue as it tries to fill the US$660-million hole left from divesting its UMTS Access business at the end of last year, gross margins between 41% and 44% of revenues, and operating margins at 5% or higher of revenues. Should Zafirovski achieve these steady improvements without surprises, it would be a uniquely Nortelian triumph.

One potential distraction: acquisitions. The company now has US$4.55 billion in cash. And with Nortel, investors have learned to expect the unexpected.