This Stock Loves the Recession

Red Hat (NYSE: RHT  ) has never looked like a no-brainer winner among tech stocks, but its business story is getting better by the day.

The latest? The CIO of the state of California, Teri Takai, last week said in a policy letter that using open-source software has been sanctioned as "acceptable practice." Shocking, right? Open-source is typically cheaper than licensed software, and the Golden State faces a multibillion-dollar fiscal crisis. I'll be surprised if more states don't follow California's lead.

Red Hat wouldn't be the only company to benefit from wider use of open-source. Novell's (Nasdaq: NOVL  ) SuSE Linux remains a popular option, and Dell (Nasdaq: DELL  ) offers netbooks loaded with Ubuntu Linux. Hewlett-Packard (NYSE: HPQ  ) , meanwhile, has tuned some of its servers to run Ubuntu.

And let's not forget Google (Nasdaq: GOOG  ) . The Big G's Chrome OS is open-source, too, and is largely based on Linux technologies.

Even if technology spending recovers this year, rising 3.2% as the analysts at IDC predict, and even if open-source grabs a good chunk of the new dollars, Red Hat will have plenty of competitors grabbing for a slice of this growing pie.

The bare-knuckles nature of the open-source market, and Red Hat's sky-high 70 P/E ratio, have some Fools in our 145,000-plus Motley Fool CAPS database worried that the stock has run too far, too fast:

Metric	Red Hat
CAPS stars (out of 5)	**
Total ratings	637
Percent bulls	81.6%
Percent bears	18.4%
Bullish pitches	105 out of 134

Data current as of Jan.14.

"I'm bullish on Red Hat for the long term, but its stock price seems a bit pricey right now," wrote CAPS investor JackCaps on Christmas Eve, shortly after the company issued a terrific fiscal third-quarter earnings report. Subscription revenue rose 21% over the year-ago quarter, in part due to better pricing.

That's a great statistic. Mix in wider acceptance of open-source Linux as an alternative to Microsoft's (Nasdaq: MSFT  ) Windows, and this stock looks like a winner to me. Thus, I'm going long on Red Hat in my CAPS portfolio.

Think I'm wrong? Have a different view? Make your voice heard using the comments box below.