Companies that control the communications and Internet interconnections of a lot of networks are known as backbone stocks, because they control the main "trunk" connections of the Internet around the world.

Forbes magazine recently did an article on these companies and listed the top 10 backbone stocks in terms of network connections, which are now being tracked on Stockpickr.

The stock at the top of the list is Level 3 Communications (LVLT), with 2,443 inter-connections. This $2.4 billion market cap stock recently announced that it has launched high-speed Internet protocol services in the Toronto and Montreal markets. It also received a Business Communication Services Award from Frost & Sullivan. The company recently generated a loss of 31 cents per share.

Level 3 is owned by the Fidelity Select Telecommunications Fund, which has a Morningstar rating of three stars and is managed by Brian Younger. The fund has had an average annual return of 23% over the last five years. The fund also owns SBA Communications (SBAC), which recently generated a loss of 75 cents per share; Crown Castle International (CCI), with a forward PE of 238 and PEG of 25; and Google (GOOG), with a P/E of 24 and PEG of 0.66.

Another backbone stock that's high up on the list is Verizon Communications (VZ) through its UUNet division, which has 1,763 interconnections. The company just implemented new interactive features for its television service in Maryland and Virginia. The stock has a P/E of 14 and a PEG of 1.3, and it yields 6.9%.

Verizon is favored by David Dreman, chairman of Dreman Value Management and a longtime Forbes columnist known as "The Contrarian." His fund's Large Cap Value Fund has returned 17% annually on average, and its Small Cap Value Fund has returned 16.5% annually on average since the firm's inception in 1991. Dreman also likes Bank of America (BAC), with a P/E of 19; Apache (APA), with a P/E of 6; and Lowe's (LOW), with a P/E of 11.

Another backbone stock is Global Crossing (GLBC), with 1,446 interconnections. It just announced the appointment as CFO of John Kritzmacher, who was formerly with Lucent Technologies. The company recently generated negative earnings.

Global Crossing is favored by Carlos Slim Helu, the second-richest man in the world, with a net worth of about $53 billion. Helu also holds shares in Telefonos de Mexico (TMX), with a P/E of 10, and America Movil (AMX), with a P/E of 14.

For more ideas, check out the Backbone Stocks portfolio at Stockpickr.com.

Posted on Oct. 14, 2008