Point State Capital Buying Up Verisign (VRSN)

Red Hat is the open source software provider that is up almost 20% year to date. Despite its high P/E ratio of 60x, its forward 30x brings it more in line with the industry. Red Hat was a new position for billionaire Jim Simons during 3Q (check out Jim Simons’ top picks here).

Akamai is expected to see revenues up 17% in FY2013 after an increase by 25% in FY2012 following increased server sales. Virtualization and cloud computing infrastructure will drive growth thanks to companies upgrading their IT. Akamai is creating solid growth prospects via acquisition, having made $900 million in acquisitions since 2005; the company recently bought Contendo for $280 million to expand its technology and customer base. Akamai was a big bet for Ken Griffin – billionaire investor and founder of Citadel Investment Group – who increased his stake by 500% last quarter (see Ken Griffin’s newest picks here).

Equinix should be able to grow nicely with its data center operations, mainly due to a rise in the amount of capital companies allocate toward IT. Our one hesitation is Equinix’s excessive valuation. The data center company trades at a 70x trailing P/E and a forward P/E that still puts it above its peers at 50x. Even with its long-term expected EPS growth rate above 25%, we remain cautious.

In Mandel’s downside scenario for Verisign – which included the DOC’s decision to disallow price increases – he still sees 2013 EPS to come in at $2.50, which is 15% above current consensus estimates. We believe that Third Point likely has a similar thesis and took the recent selloff as overdone. Verisign currently trades well below the other Internet peers listed at only 22x trailing earnings and 17x forward earnings. The company boasts a solid balance sheet and cash flow generating abilities. Its $1.5 billion cash position should help with dividends; it already made a $2.75 per share special payment earlier this year.