The Best Stocks for 2010: Akamai

It's usually my Foolish friend and colleague Tim Beyers who stands on the soapbox for Akamai Technologies (Nasdaq: AKAM  ) , trumpeting the Internet traffic expert's many advantages for the world to hear. But Tim is not the only Fool who loves and owns Akamai. It's my turn to grab the megaphone, Tim!

Meet Akamai
If you've never heard of Akamai, I'm guessing you're not a very heavy Internet user. The company has been alleviating bandwidth bottlenecks for more than a decade. Granted, in the beginning, Akamai may have felt like a part of the problem rather than the solution, because charter customer Yahoo! (Nasdaq: YHOO  ) often stalled out while waiting for some image file to be delivered from an Akamai router.

The core problem that gives Akamai a business reason for existing is that the Internet users of the world grow hungry for more bandwidth faster than the infrastructure that powers all this data exchange can be improved. Rolling out endless miles of fiber-optic cables is extremely expensive. But by storing large files in a data center near you, rather than in one central point for the whole world to access, Akamai cuts to the chase.

Name a massively multinational business with heavy networking needs, and chances are pretty good that Akamai helps that company today. The customer list includes computing heavyweights like IBM (NYSE: IBM  ) , digital media monsters like Apple (Nasdaq: AAPL  ) , and even network service providers such as Verizon (NYSE: VZ  ) .

In other words, Akamai's expertise is something that true giants of many different industries feel unable to copy with in-house solutions. As long as the bandwidth starvation continues apace, it's safe to say that Akamai is needed, and will continue to grow.

Cisco Systems (Nasdaq: CSCO  ) , Apple, and many others are doing their darndest to keep the bandwidth hunger ravenous, and we're just barely entering the age of online video. Can you remember a Web without YouTube? That was just five years ago. Imagine what the next five years might bring, and you'll start to understand why Akamai's growth is nigh-on guaranteed for years to come.

Hypergrowth at deep-value prices
Here's the best part: Akamai can be found in the discount racks of Wall Street.

The stock trades for only 25 times trailing free cash flow. This is for a company that converts 21% of revenues into free-flowing cash, and has grown both sales and net income by about 30% a year over the last three years. Akamai's share price has nearly doubled in the last 12 months, but I think that's just the beginning; we're still a long way away from three-year highs in the $50 range.

Given that I expect demand for Akamai's services to stay stronger than steel, that makes the stock very cheap today, despite nearly doubling in a bounce off the recession's bottom last year. The only way is up!

Best of both worlds
Now, Akamai does not have a monopoly on so-called edge routing, which is the fancy technical name for local delivery on a global scale. For example, Amazon.com (Nasdaq: AMZN  ) is shooting for Akamai's smaller customers with a new media routing service that rests on another truly global network structure.

But nobody has the proven solutions and operating history of Akamai, and that includes both Amazon and primary competitor Limelight Networks. If they ever become true threats to Akamai, that day is still many years away. In 2010, the only way to beat Akamai at its own game would be to buy it. Until then, serious efforts by the likes of Amazon to enter Akamai's market only validate the business potential of said market.

I am convinced that no stock -- in the tech sector or elsewhere -- offers the combination of growth, security, and deep value that Akamai presents today. You might get lucky with a long shot, or plod along on the back of an unexciting value stock, but Akamai gives you the best of both worlds. Ninety-six percent of more than 2,700 CAPS players agree, making Akamai a five-star stock.

What do you think?

Which is the best stock for 2010? See all 13 candidates here.

Fool contributor Anders Bylund owns shares in Akamai, but he holds no other position in any of the companies discussed here. He doesn't listen to any incarnation of Miley Cyrus. Akamai Technologies is a Motley Fool Rule Breakers selection. Apple and Amazon.com are Motley Fool Stock Advisor picks. 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 (3) | Recommend This Article (25)

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 December 31, 2009, at 1:38 AM, FreeMortal wrote:

    The biggest company you never heard of. Yet you use them everyday, MORE than Google.

    Yes, you read that right.

    More than Google.

  • Report this Comment On December 31, 2009, at 11:38 AM, Fool wrote:

    Just happened on Akamai a few weeks ago and bought in. Aside from Ford early this year, it is the best deal I've made. Nice to read this article for a little validation.

  • Report this Comment On January 05, 2010, at 12:54 PM, krishna505 wrote:

    I'm bit confused about Akamai's valuation. The TTM PE is 33x compare to 27X of Computer services industry, but 1 year EPS growth is 40% compare to industry 14%, which actually justifies expensive PE. Bit expensive P/B 3.8x, but a very impressive quick ratio of 7x. However, unbeatable, ever growing business model makes Akamai a great long term investment.

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