Red Hat

Red Hat ( RHT), one of TheStreet Rating's top-rated software stocks, is a software application company that provides services and solutions for open source platforms such as Linux. Open source software is free and available to anyone who desires to avail themselves of its use.

Of course, there is a catch. You need to develop and maintain your own proprietary programs. This is sort of like the alarm company that provides free wiring and hardware but requires you to pay for the monitoring of the service.

Linux is one of the most popular and redistributed software programs around the world and is used in mobile phones, tablet computers, video games, supercomputers and desktops. Red Hat has grown rather consistently at a 15% to 20% annual rate, which places its valuation at the high end of reasonable. What has me concerned is that analysts do not expect as rosy a year in 2012 for the company. As a result, the company's stock faces potential P/E contraction.

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