A "Distinguished" CLEC

01/07/2005 12:00 am EST

Focus:

Much of the best research comes from advisors who develop an expertise within a specific sector. One such advisor is Nikhil Hutheesing, a leading expert on the wireless industry and various related telecom sectors. For his Top Pick, he turns to Mpower.

"Occasionally, Forbes Wireless Stock Watch will recommend telecom-related stocks even if they are not in the wireless sector. One such company that I think offers compelling value for 2005 is Mpower Holdings (MPE ASE). The company is a competitive local exchange carrier (CLEC) that distinguishes itself from most other CLECs because it owns its own network, while many of its peers piggyback on the networks of other operators. Mpower's service, which operates mostly in the western US, just got a boost in December when the FCC amended its regulations that required the old Bell operating companies to subsidize their competitors, which was a blow to most CLECs, but not to Mpower.

"Financially, Mpower is in a good position. In late October, the company posted a loss of $1.3 million in the third quarter, but its core customer revenue showed strong growth. Management also said it expected more than 100% annual cash flow growth in 2005 and 2006. Mpower, which has about $34 million in cash and no debt, is also growing. The company recently announced that it would acquire a California CLEC, ICG Communications, making it the top CLEC in California. I initially added the shares to our portfolio in May at $1.29 per share, and the shares have since risen some 45%. Despite these gains, MPE is my top pick for 2005, with a target of $2.50."

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