Troubling Comms

So it turns out that BT Group (BT.A) are having some "issues" right now. I can't really see why it is particularly suffering, but its already at around -17% on purchase... and Verizon (VZ) is also running -15%, so all in all my safe comms shares are preforming pretty badly for me. I am however going to stick to my original 11th March plan for a sale decision on both of these. I'm just hoping right now that its not a flawed decision!

The dollar verses the pound is running at 1.431, so in effect hovering at just above purchase... financially speaking I just seem to be going nowhere at the moment and I am already looking forward to being free of my comms shares.

I'm thinking of being a little risky and investing in some tech shares. Specifically I'm looking at Red Hat (RHT), which is 36% down on 6m. Its currently running at 14.21 but has been running as high as 24.84 on the year. It also carries a 34.96 P/E, so as a medium to long term investment it looks pretty tasty. Figures aside though I like Red Hat; I admire their commitment to open source and their market share is still strong; with Apache based servers running 50% of the Internet according to January's NetCraft Survey. My concern is that Apache used to hold a more dominant position; at the end of 2005, it held about 75% compared with Microsoft's 25%, but since then MS has put a great deal of work into its IIS offering and as a result has climbed to about a 50% share.

You could perhaps tie this into the more commercial nature of the Red Hat corporation since the 90s, when they were considered more of an "open source" company. Since then Red Hat has now gone "Enterprise" and the opportunity to support larger organisations has been harnessed. This extended support provision is something that can only attract larger enterprises and pull them away from expiring offerings such as Novell or over priced, licensed burdened, closed source offerings such as IIS.

I would certainly support this share as part of a medium to long term investment, with a 2 year maximum review, as I see Red Hat stock gaining some serious stock, with both the server software and support aspects of its offering only contributing to that success.

An interesting comm share right now, should anyone wish to enter what seems to be a pretty erratic sector, would be Level 3 Communications (LVLT). Currently running at 0.738, they've been all over the place this year, with a high of 4.48 and a low of 0.57. Level 3 are a backbone provider operating out of Colorado, and seem to have a pretty sensible business model, exploring merger and acquisition opportunities last year and cutting back staff early December.

My only concern with them is a class action suit filed against them for an alleged 2007 securities laws violation which has to do with its quarter reporting, press releases and general PR which artificially impacted the stocks value. The bottom line is that this class action has not had a direct impact on the price yet, which worries me because it will hit as the class action gains momentum and coverage. In my opinion, Level 3 are certainly more of a risk than Red Hat, but have more earning potential if the suit action is managed badly or turns out to be unfounded.

Just out of interest, here is a 52 performance index of the companies we've been talking about today (Verizon, AT&T, Level 3 and Red Hat). Although Red Hat really isn't in the comms sector, the data from a "where next" angle is still useful.