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.