"...in January 2001, the wholesale price of a one-year forward contract for an OC-3 grade connection between New York and Los Angeles...came to $26,000.... By November that contract went for $3,000." Jubak claims that WorldCom Group is facing "quickly falling prices in the core data and Internet businesses." How serious is this problem and how are you dealing with it?
The argument is that slowing growth will reduce income which, in turn, will make servicing their huge debt unwieldy. This scenario will force WCOM to sell valuable assets and issue dilutive stock to keep things going, or file for BK, making it an undesirable investment even for long term investors.
These arguments seem plausible. However, when I try to test them out and confirm the accuracy of their prophesy, I run into the problem of WCOM's size and diversity. There are so many different assets and the company is so much like a big ship, its easy to see there are many ways to play it.
Furthermore, its still not clear to me their business is falling off a cliff. So, I am unable to reach a conclusion that satisfies me. However, at these levels, I am willing to speculate on the possibility of success. Having said that, currently, I am out of the stock until the markets settle down a little.
ted |
