Buying LVLT
I've been hearing a lot of pundits say that buying Citigroup (C) at 3 dollars and change is like buying an unexpiring option on the financials in general. Personally, I have no idea how to play the financials and the depth of government intervention into that industry scares me away. If I were to buy a bank it would be a solid regional like BBT.
There's always scary government intervention around the corner in the Telecom industry as well. But I work in the industry and I am eager to diversify into it, as I tend to specialize in semiconductors. I believe in the future of telecommunications, and I see an exponential rise in demand for bandwidth still ahead of us. This rise in demand will occur regardless of the state of the economy (short of Atlas Shrugged style blackouts), for the simple reason that its more cost-effective to use the Internet in substitution for myriad real-world activities (must I go into them? Also, please note that I use the word "myriad" properly - it's not "a myriad of"!).
The map above illustrates LVLT's asset, a fiber optic "backbone" that dwarfs most other man-made wonders. The 200+ gigabit per second trans-atlantic network is an astounding feat of engineering. LVLT leases this massive asset out to ISPs who need interconnections.
LVLT has been spending a lot of money to upgrade this network over the past couple years, and at the worst possible time. It has now incurred 6 billion dollars in debt, and has been scrambling to find the cash to service it. But they've done the necessary trimming and they are now out of the woods until 2012, it seems. Return to profitability appears inevitable. This is a company that could start throwing off massive wads of cash very quickly.
The whole Telecom sector is beat down but few worse than LVLT, which has seen its stock price deteriorate to a lowly 1.56, and a rather anemic market capitalization of 2.5 billion dollars. I'd put a value on that map, and the bandwidth it represents, of at least 15 billion dollars.
So LVLT represents an "option" on telecom sort of like Citi for the financials (yeah, I got there). It is a speculative bet but I can't help but buy it as I look at that map. Barring a bottoming of SWC, I will buy some tomorrow.