This Is Why You Love Level 3

Last week, I asked for your help: "Level 3 Communications (Nasdaq: LVLT  ) diehards, could you explain to me why you love this company so much?"

And just in time for Valentine's Day, many of my readers did explain why they love Level 3. Here's what I found out:

The No. 1 love potion in Level 3's brew is its enormous bundle of installed fiber-optic cables. "If demand ever skyrockets, they should capitalize big time," says Mr. Gordon Huber, noting that Google (Nasdaq: GOOG  ) announced a fiber-optic networking play the same day. Another reader, who asked to remain anonymous, explained that "most of us long on Level 3 do it because we believe in the convergence of all forms of communications to an all-IP format." And Mr. Roy Lewis, who owns the stock but also found a lot to dislike about the company, simply believes that Level 3's assets are worth much more than what you see reported on the balance sheet. Anything short of a forced liquidation should eventually unlock that value for shareholders.

I can see your point, folks. Level 3 does own a metric boatload of fiber networks. Through recent initiatives like content delivery services that make Level 3 a competitor to Akamai Technologies (Nasdaq: AKAM  ) , as well as piggybacking on the general growth of global bandwidth, Level 3 could turn a profit from those expensive assets in the end. Fair enough. As my anonymous informer posits, there could be a huge short squeeze if and when that happens, and it would be a shame to miss out on that. Nearly 10% of Level 3's shares were sold short at the last reckoning.

If your investing thesis rests with growing Internet traffic, I think you'd be better off with Google, Akamai, or Cisco Systems (Nasdaq: CSCO  ) -- all of which are leaders in their sectors that reliably transform their leading positions into large profits. If the infrastructure itself is more appealing to you, then why not cast your lot with larger players like AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , or Qwest Communications (NYSE: Q  ) ? Their infrastructure assets might be a different mix, but all of those telecom/networking stocks also pay generous dividends, while Level 3 doesn't.

So thanks for the clarification, everybody, and forgive me if I'm still not convinced. Level 3 is swimming in debt and capital expenses, and we have so many ways to invest in what Level 3 is good at without assuming all the risk with which it is saddled. That's my opinion -- feel free to share your own in the comment box below.

Fool contributor Anders Bylund owns shares in Google and Akamai, but he holds no other position in any of the companies discussed here. Akamai and Google are Motley Fool Rule Breakers choices. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (2) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2010, at 8:32 PM, driferia wrote:

    You have really good insight here, I still think that the bottom line is that Level 3 is a medium risk that is well worth taking. The current financial reality of Level 3 is greatly undermining its true value given the vision of a soon-to-happen boom in the demand of high-speed internet caused by the transition of high-def media from cable/satellite to IP. Microsoft has already openly spoken about plans to provide live high-def media through the xbox 360, and my hunch is that it will be available to customers this year (with the arrival of Project Natal). This puts Microsoft at the top of the list as a content provider.

    Google, Verizon and Comcast (all of which I also own) would be in this game, but they would have to do some serious catching up to make up for a rapid growth in demand, which would be exacerbated by the fact that we may eventually see a switch from cable-internet (Time-Warner) to optical - cable cannot handle the bandwidth that is required by a mass demand of high-def media. All of this will be reinforced by increased demand for Netflix (and others alike) online services. What the IPOD has done to Apple may be comparable to what high-def media will do to broadband internet. The whole thing could even create a new e-bubble – wishful thinking?

  • Report this Comment On February 17, 2010, at 9:16 PM, driferia wrote:

    You have really good insight here, I still think that the bottom line is that Level 3 is a medium risk that is well worth taking. The current financial reality of Level 3 is greatly undermining its true value given the vision of a soon-to-happen boom in the demand of high-speed internet caused by the transition of high-def media from cable/satellite to IP. Microsoft has already openly spoken about plans to provide live high-def media through the xbox 360, and my hunch is that it will be available to customers this year (with the arrival of Project Natal). This puts Microsoft at the top of the list as a content provider.

    Google, Verizon and Comcast (all of which I also own) would be in this game, but they would have to do some serious catching up to make up for a rapid growth in demand, which would be exacerbated by the fact that we may eventually see a switch from cable-internet (Time-Warner) to optical - cable cannot handle the bandwidth that is required by a mass demand of high-def media. All of this will be reinforced by increased demand for Netflix (and others alike) online services. What the IPOD has done to Apple may be comparable to what high-def media will do to broadband internet. The whole thing could even create a new e-bubble – wishful thinking?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1114314, ~/Articles/ArticleHandler.aspx, 9/30/2014 4:31:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement