This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Red Hat May Be a Buy After Turning the Corner

I can't knock the bear who insists on raising this point. Management needs to sort this part out. Margins can't continue to contract and then expect concerns about valuation to go away. Investors will want to know what they're paying for.

But given Red Hat's solid beat on the top and bottom lines, I'm now willing to look slightly the other way.

It was certainly encouraging that Red Hat's CEO, Jim Whitehurst, didn't appear too concerned about the companies competitive situation. In an interview with TheStreet's Chris Ciaccia, Whitehurst cited (among other things) Red Hat's plans to enter new categories including Open Shift and Open Stack. He also noted:

"The power of Open Stack is that it has massive participation. It has everyone from Microsoft to VMware (VMW), to Hewlett-Packard (HPQ) to us participating in it. An industry is coalescing around an open source standard. There's a lot of momentum and a lot of interest in Open Stack, but it's still early days."

Whitehurst has essentially given investors reason to be patient. Investors have long feared that despite the company's strong Linux business, Red Hat lacked differentiation in areas such as middleware, which is the software that lies between an operating system and specific software applications. Open Stack seems to be the answer.

If Red Hat can duplicate its Linux success into these new initiatives, investors will end up doing well. But these are some pretty big ifs. Both Oracle and IBM have equal motivation to enter these markets. I'm not discounting Red Hat's capabilities. But I also understand that the company is behind both IBM and Oracle in some pretty meaningful enterprise categories.

These realities have prompted investors to sell the stock this year by as much as 13%. The stock still hasn't entered my value threshold yet. But after a solid first-quarter earnings report, which included new strategic initiatives, I think Red Hat deserves a chance -- even if it is on the basis that "the worst is over."

It's not a glowing endorsement. But with an improving enterprise spending environment and a market that continues to show a strong bias towards cloud-based tech companies, sometimes that's all you need.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
RHT $69.12 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs