I’m going to tell you about a surprising place to find windfall tech profits.

Wall Street refers to them as “special situations.”

You might call them “turnaround plays.”

High-potential tech turnarounds don’t come along that often, and can be tough to find.

But the payoff can be well-worth the search.

So let me start by showing you the four tell-tale signals that can help you find these big-profit stocks.

From Rule Breakers to Wealth Makers

Those of you who’ve been following my columns for some time know that I’ve spent much of the last few months explaining my Five Rules for Creating Tech-Investing Wealth. Those still hold.

In fact, this search for “tech turnarounds” isn’t a contradiction of those rules.

It’s kind of an exception.

You see, my five rules are focused on stocks that can double your money in two, three or four years- because we look for companies that are growing sales and profits at a faster-than-average pace.

Tech turnarounds, though, aren’t usually on that same growth path. These are tech firms that missed a major market shift, were late debuting a key product, or that stayed with the same manufacturing process long after it was profitable. These are firms that committed strategic miscues or tactical missteps, and whose share prices have been clobbered as a result.

I got involved in this field in a surprising way.

Back in the early 1980s, I had dinner with the undisputed turnaround king of all time – Chrysler Corp.’s makeover maestro Lee Iacocca.

That got me hooked.

I subsequently served as a strategic consultant to an investment banker who financed firms that were restructuring.

All of this gave me the chance to see, firsthand, the impact that a successful turnaround strategy can have on a company, its customers, its employees – and its investors.

I also learned a valuable lesson: To see a turnaround play through to its finish – as a consultant, financier or investor – you need to have the “right” tolerance for calculated risk … and perhaps even be hungry for it.

Here’s what I mean …

To succeed as a turnaround investor, you have to be willing to put the money that you’ve worked so hard to earn into companies that often have steep losses. With this kind of investing, the “fundamentals” that I emphasize with my Five Rules are almost irrelevant.

And yet, there’s still a way to get a “margin of safety” built into your investment in these types of stocks.

Take the case of FormFactor Inc. (NasdaqGS: FORM). This specialty supplier of test equipment to semiconductor firms has a market cap of $365 million and trades at about $6.65 a share.

However, the true cost of buying FORM is closer to $4 because the firm has $196 million cash on hand and almost no debt. That gives it a net cash per share of $2.75, lowering your “true cost” by about 40%. (If the firm were to liquidate, that’s how much per share you’d be entitled to receive.)

Here’s another way to look at it: Because of all the cash, you’re buying FormFactor’s actual business for about $3.90 a share.

Why the discount? Well, FormFactor’s stock sank in late 2009 after the International Trade Commission (ITC) ruled that two competing firms had not infringed FormFactor’s patents. It then reported losses amid a weak economy.

But investors are catching on to the company’s turnaround story, sending shares up nearly 35% in the past month.

It still has plenty of upside. If it just got back to half its five-year high of $25.67 set on Sept. 7, 2009, it could hit $12.84 – for gains of more than 90%.

Then again, FormFactor meets the four basic criteria or “screens” that I use to judge turnaround candidates.

Let’s examine each one:

Turnaround Factor No. 1: A Solid Recovery Starts at the Top

When a company needs to go in a new direction, it has a much better chance at success if there’s new blood at the top. New execs bring fresh ideas and new approaches with them and aren’t hobbled by old alliances at the firm.

Back in 2010, in order to get FormFactor moving forward, the company hired outsider Thomas St. Dennis as its savvy new CEO.

St. Dennis is a tech-sector veteran, having served two stints at chipmaking equipment leader Applied Materials Inc. (NasdaqGS: AMAT). He also held senior positions at a leading maker of the silicon wafers needed to build chips and at a firm that supplies specialty semiconductors for cars, jets and medical products.

Once he was in place, St. Dennis brought in an entire new senior management team. He now has a group at the top that all have one goal: create the “new” FormFactor.

Turnaround Factor No. 2: All Change Begins With a Catalyst

As investors, we’re always looking for the catalyst that will ignite the stock. That’s particularly true with turnarounds.

To convince key customers, lenders and investors that a once-troubled firm is on a new path, it has to have something concrete to offer. These can include new products, new markets or better ways of doing business.

In FormFactor’s case, the company did all three by pulling off a big merger. Last fall, it bought privately held MicroProbe Inc. for about $100 million in cash and roughly $16 million in stock.

The merger made FormFactor the semiconductor industry’s largest supplier of test-probe cards, the specially designed electronic cards used to check the quality of circuits in silicon chips.

St. Dennis is taking a hybrid approach to merging these two firms. He has combined sales, products and technology teams to cut costs and to create a shared vision. But he allowed MicroProbe to keep its name, reflecting its status as an entrenched leader.

Turnaround Factor No. 3: Look For Improving Finances

A troubled tech company just can’t put its past behind it unless it can rebuild its balance sheet and its sales and earnings. Otherwise, losses will simply return.

Here, FormFactor is clearly on the right track. Its balance sheet is still a mess, but it is making progress: The firm has restructured operations to slash operating costs while getting products to market faster.

It still needs to cut general and administrative expenses, which rose some 30% in the first quarter compared with last year. But over the last 10 quarters, FormFactor has lowered operating expenses by roughly 35%.

FormFactor also spent $4 million on restructuring charges, a common expense for turnarounds. These items explain why losses of 37 cents a share were up nearly 6% from the first quarter of 2012.

But outlays like this are referred to by Wall Streeters as “one-timers,” because they aren’t part of the ongoing cost structure of the business. So investment pros often “back out” such costs to get a better idea of the sustainable health of the underlying businesses.

The merger is already helping the combined firm bring in new sales. In fact, sales soared 51% in the first quarter. So-called “top-line” growth is a sign of health – you can manipulate profits with some bookkeeping maneuvers. But sales are much harder to fake.

The upshot: As the company’s business improves so will the stock price.

Turnaround Factor No. 4: The Power of New Growth

And FormFactor has one more key factor to recommend it. The recent MicroProbe merger moved it into the growth market for mobile devices – the so-called “Mobile Wave” that we’ve talked so much about here.

Right now, smartphones and tablets are outselling PCs by a ratio of nearly 5-to-1. Chips for this segment are much simpler than the ones used in PCs. That allows FormFactor to make less complex – and much cheaper – test cards to serve a rapidly growing market.

The firm expects its mobile test products to experience explosive growth. Over the next several years, this segment will soar from the 17% of sales it represented last year to 50%, the company says.

Positioning Yourself for Maximum Profits

Clearly, FormFactor is making all the right moves.

But since turnarounds carry more risk, I suggest that you take steps to add a “margin of safety” to any investment you make.

That’s actually quite easy to do.

First, start out by making smaller “entries.” For instance, if you generally put no more than 5% in a single position, I would limit a trade like this to 2%. You can also “average in” by starting with a smaller position, and adding to it over regular intervals.

Second, limit your losses.

By using “trailing stops” and “stop losses,” your portfolio won’t suffer much damage no matter what happens.

But you will be set up to take advantage of a massive move up if FormFactor executes its plan.

The gains from these kinds of stocks can be dramatic – and can come quickly.

Just after the start of the New Year, for instance, I told subscribers of my Radical Technology Profits trading service that I liked Advanced Micro Devices (NYSE: AMD), the troubled chipmaker that has been dominated by Intel Corp. (Nasdaq: INTC). AMD began executing on its turnaround, with new management, new business possibilities brought on by tablets and new gaming consoles, and a merger that brought new products. The stock gained as much as 66% in four months, and is still up more than 50%.

Best of all – some investment pros are calling for AMD to double – from here….

But our readers were in on it early.

And that’s the power of a tech-turnaround play – the massive, hidden profits that are actually easy to find – as long as you know where to look …

Editor’s Note: As my recent “Tech Stock Treasure Map” column underscores, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.

They understand how to navigate choppy conditions.

That shared insight is something I know about firsthand. You see, I moved to the Bay Area nearly 30 years ago to be closer to the tech-stock mecca of Silicon Valley and to race sail boats.

In recent years, I even found a way to combine those two loves: Though I eventually traced the rigors of racing for the simple joys of cruising, I now manage to go sailing on a regular basis with a couple of tech-investing pros – including one who’s a daily denizen of “the Valley."

During one of our most recent outings – after we traded stories about battling whipping winds and four-foot-and-higher waves – I found that my sailing compatriots agreed with my belief that tech stocks are headed for some choppy seas this summer.

But that doesn’t mean you should stay tied up at the dock.

Over the past several months I’ve told you how to build wealth.

Today I’m going to show you how to keep it …

Five Moves That Will Calm Your Nerves

Look, I can understand why investors – and even consumers, for that matter – are feeling a bit rattled right now.

First, you have before you a 7.6% unemployment rate – which to most folks sees outlandishly high this late into an economic “recovery." Then you have the threat of an increase in interest rates – when we all know that cheap money and low rates have been two of the biggest catalysts behind this bull market.

Finally, you have the fact that the NASDAQ Composite Index reached an 11-year high of 3,502 on May 21, which likely has many investors worried that this tech-centric index was trading at stratospheric levels – meaning any bad news could cause it to teeter.

As if to confirm those worries, in the two weeks that followed, the NASDAQ had two down sessions for every up day it posted. It closed Thursday at 3,445.37 – down about 1.6% from its peak.

Investors who “drill down" and really study the markets were likely even more fearful. On Monday, the Standard & Poor’s 500 Index closed basically unchanged from the previous trading session. But the very next day, it was off roughly 1%, a somewhat docile number that masked the underlying turmoil. When the closing bell rang, only 18% of stocks showed gains – while a full 77% were losers.

But don’t worry, I approach tech investing the way I skipper a sailboat. For instance:

• I plot my route (to my destination) before I start my journey.
• I account for every hazard that I can – and have safety-focused contingencies.
• And I don’t take unnecessary risks.

A lot of folks are going to ask: “If you know there are risks, why leave the dock at all?"

That’s a good question. And I had some very good answers.

For one thing, while you may suspect certain risks are present, and may even fear them, you never really know when they’ll show themselves.

Sometimes the things you most fear never happen. And when you let fear paralyze you, some pretty terrible things can result. In sailing, if you stay tied up at the dock, you never reach your destination.

The same is true with investing. Here at Strategic Tech Investor, our goal is to help you avoid the plight of so many Americans, who have zero net worth.

But if you stay out of the market, you can’t reach that destination, either.

In fact, if you sit on the dock and stare at your boat because you’re worried about the choppy seas, the damage your finances can suffer is irreversible.

If you invested $10,000 in stocks at the start of 1980, and stayed in the market, your “nest egg" would’ve grown to $332,500 at the end of last year. If you missed just the five best days of the market, that nest egg would’ve grown to only $215,000. Miss the best 30 days, and you’d have only $63,500. You get the idea.

Our message here is that you can earn returns that are well-above average by investing in tech stocks – the “right" tech stocks, to be sure. And we’re here to help you find those “right" tech stocks.

But the same “missing-the-best-days" precept holds true.

In the past I’ve told you about the rules in my five-part strategy for building wealth through tech stocks. Now I want to share five tips that can help you keep that wealth.

The goals here are to ride out the choppiness and not risk missing those “best days."

To manage your risk and achieve these additional goals, you should look to:

1. Make smaller entries: This is a powerful way to reduce risk from a correction but still catch a good part of any rally. Let’s say you have $100,000 in the market and in normal times limit any position to 5% of your capital. If your risk worries are rising, you might cut that “position-sizing" figure in half to 2.5%, or $2,500.

2. When in doubt, start with “test" shares: In the above example you might make an initial entry of, say, $500 – just to make sure you’ve timed your entry correctly, which is hard to do in volatile markets. You can then add to your position as the stock advances. (If you’ve ever read the investment classic “Reminiscences of a Stock Operator," which is a fictionalized account of real-life trader Jesse Livermore, you’ll find that was a tactic this big-time trader greatly favored.)

3. Use stop-losses: There are two ways to employ these essential portfolio tools. The first is a stop-loss that protects against losses getting too deep. I suggest a stop loss of no more than 20%. The second method is a “trailing stop" to protect gains. This is one that moves up as the price of the stock advances. Use the same 20% figure in this manner. Let’s say you bought a stock at $15 that’s gone up by two-thirds to $25. Put in a trailing stop of $20. That way you get out with profits of 33% no matter what happens.

4. Take “Free Trades:" This is a great way to take gains off the table and still go along for the ride. It works like this: When you are up 100% on a stock, sell half. That way you recoup your entire investment and are “playing on the house’s money," as we like to say. Then use a trailing stop to protect profits on the remaining half.

5. Stay in the market: If you want to reduce your exposure, that’s fine but don’t cash out altogether. I know a “very savvy trader" who got scared last November and sold all his stocks. Since then, the market has rallied some 21%. He left a lot of money on the table. Had he cut his holdings in half, he’d still be sitting on overall gains of 10%. You can always shift some of your capital into ETFs. On Tuesday, I showed you how the iShares NASDAQ Biotechnology Index (NASDAQ: IBB) can greatly reduce your risk – while still giving you the chance to double your money.

In the meantime, I actually do see a lot of positive signs for the overall market and for tech in particular.

After years of declines, new money is flowing back into the stock market. The research firm TribTabs says that, as of the end of April, investors have put roughly $60 billion in new cash into stocks so far this year.

That’s already more than any full year since 2004. In fact, the TribTabs stats show a net outflow of $178 billion for the previous two years combined.

So, the new cash is welcome news. After all, bull markets need fresh cash to keep moving up. For the long term, this is an excellent trend.

Key sections of tech continue to do very well. Mobile devices are flying off the shelves and firms involved in Big Data and the Cloud are raking in the cash.

On the strength of those trends, semiconductors stocks have staged a solid rally this year. The Market Vectors Semiconductor ETF (NYSE: SMH), a good proxy for the sector, is up nearly 18% since January.

The biotech sector continues to show strength. For instance, IBB, the biotech ETF I mentioned earlier, is up 26.5% year to date, double the market’s nearly 13% return.

And remember, one of our my main missions here at Strategic Tech Investor is to help you employ investing rules and tools needed to both make money and protect your portfolio.

I’m confident that if you employ the tips I’ve shared with you today, you’ll get through any challenging markets with profits intact.

Editor’s Note: As my “Tech Stock Treasure Map" column from last week underscores, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.

Sometimes, an exchange-traded fund (ETF) can pack just as big a wallop.

ETFs with that kind of horsepower don’t come along all that often, which is why you have to pick the right one … at the right time.

And that’s the tech-investing home run that I have for you today – an ETF with actual double-your-money profit potential.

In fact, you’ll be stunned at just how quickly every $1 you invest in this fund will turn into $2 in holdings.

It’s Like the ’27 Yankees …

Over the last couple of weeks here at Strategic Tech Investor, I’ve introduced you to several “double-your-money” stocks – tech plays that I believe can generate a return of 100% or better in just two, three or four years.

Finding stocks with that kind of upside is Rule No. 5 of my five-part strategy for achieving life-changing gains.

I look for stocks because they have a better chance of having the right “risk/reward” profile: The typical ETF, with its more-diversified makeup, is designed to be less-volatile and less-risky than its individual-stock counterpart – which is why many folks turn to them. They’re stable and have low fees, but they have a hard time beating the overall stock market – let alone doubling your money in a reasonable amount of time.

But there are exceptions, including the one I’m presenting to you here.

Not surprisingly, this ETF is focused on one of the hottest sectors in today’s stock market.

I’m talking, of course, about biotech.

As I’ve told you all many times, it can take 10 years and $1 billion or more to create a new blockbuster drug.

That’s why the companies that pull this off can double in price.

Now imagine an ETF that’s chock full of companies like that …

You end up with an array of stocks that’s every bit as potent as the “Murderer’s Row” hitting lineup of the 1927 New York Yankees.

The ETF in question is the iShares NASDAQ Biotechnology Index (NASDAQ: IBB). It invests nearly 58% of its funds in big-cap firms that have successful products on the market. It’s a terrific proxy for one of the hottest sectors in the U.S. stock market.

Fact is, in just the past six months alone the IBB has risen a scorching 29%.

That’s nearly double the 15.85% return of the U.S. Standard & Poor’s 500 Index over the same period. And it follows the 31% ride the IBB gave its shareholders last year – a return that was nearly triple the 11.68% gain of the overall U.S. stock market.

If this biotech ETF were even to rise at a more-conservative annual rate of 20%, you’d be on pace to double your money by the end of 2016 …

Then again, the iShares IBB is composed of proven winners. The fund’s chief holdings are a Who’s Who of the biotech sector’s best performers.

These firms have strong balance sheets, and have a solid track record of getting FDA approvals. I mean, just look at the Top Five holdings alone:

• Gilead Sciences Inc. (NasdaqGS: GILD): The Foster City, CA-based Gilead has products that fight HIV/AIDS, and others that battle liver, heart and respiratory diseases. It also has products that fight parasitic infections and blindness. With a market cap of $80 billion, Gilead has a 29% profit margin, a 32% return on equity and free cash flow (FCF) of about $2.6 billion.

• Regeneron Pharmaceuticals Inc. (NasdaqGS: REGN): An East Coaster, based in Tarrytown, NY, Regeneron is mainly known for EYLEA, a compound that combats age-related macular degeneration, a leading cause of blindness among older folks. It also has a drug used to treat advanced forms of colorectal cancer. With a $24.4 billion market cap, the firm has a 53% profit margin, an 87% return on equity and a recent quarterly earnings increase of 750%.

• Amgen Inc. (NasdaqGS: AMGN): A biotech-sector pioneer, Amgen sells medicines to treat cancers, kidney disease, rheumatoid arthritis and bone disease. It also has products used to thwart anemia and inflammations. With a market cap of $74 billion, the firm has a profit margin of 26% and a return on equity (ROE) of 24%. It produces $3 billion in free cash flow.

• Celgene Corp. (NasdaqGS: CELG): Although it’s one of the New Kids on the Biotech Block, the Summit, NJ-based Celgene has already demonstrated its muscle. Its core technology regulates cells, genes and proteins in order to treat cancers of the bone marrow, breast and lungs. It also has an agent that fights anemia. With a market cap of $49.6 billion, Celgene has a profit margin and return on equity of roughly 25% and free cash flow of $1.9 billion.

• Alexion Pharmaceuticals Inc. (NasdaqGS: ALXN): The Chesire, CT-based Alexion specializes in rare and ultra-rare diseases, those that may affect only one in 20 million. And it has therapies for deadly blood and brain disorders. With a market cap of $18 billion, the company has a profit margin of 24%, an ROE of 17% and free cash flow of $255 million. Quarterly earnings recently rocketed 81%.

These Top Five holdings alone give us a broad reach into the next generation of biotech breakthroughs. These firms often collaborate with early-stage companies and university researchers. They also fund a wide range of new product clinical trials.

Amgen alone is involved in roughly 100 collaborations that could lead to breakthrough compounds or revolutionary manufacturing processes. For its part, Celgene says it is involved in roughly 300 clinical trials now under way.

In other words, several of the firms in this ETF are what I call “stealth small caps.” Despite their size, they offer the kind of growth rates you usually only see with small firms.

But don’t feel cheated. The IBB ETF also invests in quite an array of small caps, too. In fact, more than a dozen have market caps of $175 million or less.

I’m talking here about firms like Geron Corp. (NasdaqGS: GERN) and ArQule Inc. (NasdaqGM: ARQL), both of which are working on cancer treatments. Each company’s stock sells for less than $2.50 a share. The companies have promising therapies – but low sales and deep losses.

Add it all up and IBB removes much of the risk that average investors have in targeting the biotech sector, where many stocks offer a lot of upside but are highly volatile.

Of course, you pay a bit of a premium for this unique combination of both stability and rapid price appreciation. IBB trades at roughly $180 share.

But as I like to remind tech investors, you can’t just look at the price tag. You have to focus on the potential for profits.

And that’s really what it’s all about when it comes to investing in biotech – or any other promising slice of the high-tech market.

As this ETF demonstrates yet again, high tech has been – and will continue to be – the greatest wealth generator the world has ever known.

And the IBB is exactly the type of strategic play every tech investor should make. It’s both the easiest and lowest-risk way I know of to put a broad swath of market leaders and perennial winners in your hands … immediately.
It allows you to capitalize on a sector that’s been absolutely on fire – but doing so in a way that minimizes your risk.

And it establishes a terrific foundation for the more-risky profit plays that we’ll be examining in the weeks and months to come.

For all of this, we have but one goal – to help you avoid the “zero-net-worth” futures that so many Americans face …

But if we continue to work together as we have over these past few months, that’s a goal you can all achieve.

And we’ll be proud to have helped get you there …

See you later this week.

Editor’s Note: As my “Tech Stock Treasure Map” column from last week underscores, I welcome your comments, questions and suggestions. Post a comment below … or drop me a note at customerservice@StrategicTechInvestor.com I look forward to hearing from you.

Judging from the comments and correspondence I received, a lot of you were really intrigued by that concept – and by the huge opportunity for profits that the cloud was creating for investors.

In fact, Strategic Tech Investor subscriber Dionisios S. was so intrigued by that column that he asked me to identify some other “stealth-small-cap” profit plays.

What a great question.

The Cloud is such a broad and pervasive area of high tech that it offers us a stunning plethora of profit opportunities.

There are the “obvious” plays, like Amazon.com (NasdaqGS: AMZN) – the e-tailing tour de force that operates the Amazon Web cloud-hosting unit. And there are all kinds of “hidden” specialists – firms that provide everything from the specialized semiconductors used in high-speed servers … to the fiber-optic cables for broadband networks …to the printed circuit boards used in routers.

And that’s just on the hardware side of things.

There’s also the meshed “Software as a Service” - or “SaaS” as it’s known in technology parlance.  There you have firms that provide cybersecurity applications as a service, that manage data, that control network traffic, and even offer the cloud-hosting services themselves.

Now you know why the market research firm Forrester says the business of cloud computing is going to grow from about $41 billion in 2011 to $241 billion in 2020.

Because we understand this immense potential, we have an advantage over the rest of the “investment masses.”

Indeed, it’s like we’ve been given a treasure map – that shows us right where the treasure is buried.

So let’s take a look at the stocks Dionisios and a few others asked about – with an eye toward gleaning what they tell us about investing in this surging part of the high-tech sector. And we’ll start with a well-known tech heavyweight.

EMC Moves Beyond Data Storage

Known largely for its top-flight data storage gear, EMC Corp. (NYSE: EMC) has moved heavily into cloud technology in the last several years. The Hopkinton, Mass.-based EMC now ranks as a leader in a segment known as infrastructure services, which includes storage, data backup and delivery of computer applications.

To snag new customers, the company touts its performance. EMC says it can deliver 25% greater cloud storage efficiency, 250% faster application performance and 10 times faster data backup.

Touting its raw power is a marketing strategy that seems to be working: EMC is gaining market share and is nothing short of a cash machine.

The firm generates free cash flow (FCF) of nearly $4.3 billion a year. Indeed, EMC recently announced its first-ever quarterly dividend, initially pegged at 10 cents a share. At the same time, it increased its share-buyback program by 500%, boosting it from $1 billion to $6 billion.

With a forward Price/Earnings (P/E) of 12, the stock trades at $24 a share. I project an 18% annual earnings growth rate, meaning profits could double in about four years.

Solar Winds A Much Better Pick Than Service Now

Dionisios wanted to know about two firms that are roughly in the same software sector. The first is ServiceNow Inc. (NYSE: NOW). I don’t want to spend a lot of time on this firm because its balance sheet is a disaster.

NOW trades at a whopping 180 times forward earnings, or 12 times the market’s average. And for that you get negative returns on assets (ROA), stockholders’ equity (ROE) and operations.

I believe you’d do much better focusing on SolarWinds Inc. (NYSE: SWI) Founded in 1999, the Austin-based firm got its start in information-technology services … but has moved into cloud offerings in recent years.

In particular, the fast-growing firm offers software that improves the efficiency of computer networks, including those of hosted data centers known as “private clouds.”

To step up its cloud offerings, SolarWinds recently bought the privately held Canadian firm N-able Technologies for $120 million. But investors thought the move would dilute SolarWinds’ earnings and the stock sold off en masse.

That caused a roughly 17% decline in the share price. At present, the stock remains volatile – and perhaps also vulnerable, given the overall market uncertainty we’ve seen this week.

In the long run, however, SolarWinds has a lot to offer investors. Last fall, Forbes named SolarWinds the “best small company in America.” The business magazine cited the $3 billion market cap firm’s impressive growth and its history of offering high-performance products as the basis for the honor.

And SolarWinds is a solid company and a solid performer. It has a strong balance sheet. And it has a 30% profit margin, an ROE of nearly 25% and grew its most recent quarterly earnings by 34%.

I’m projecting earnings growth of 28% a year, meaning profits could double in about 2.5 years.

Autodesk’s Move Cuts Costs And Software Theft

Strictly speaking, Autodesk Inc. (NasdaqGS: ADSK) is not a true cloud play. But it is another great example of what I call a “stealth small cap.”

The fact is that the San Rafael, Calif.-based Autodesk is moving to cloud delivery of its software to eliminate the costs of manufacturing CDs, and then having to ship them to clients.

Autodesk launched its cloud-based subscription service two years ago and now derives more than 40% of sales from this platform.

The $8 billion market cap Autodesk is a leader in complex packages known as computer-aided-design (CAD) software. These packages provide 3D modeling capabilities, and are used in the engineering, manufacturing and architectural markets.

Software theft has plagued Autodesk for years, and licensing software to users through the Web could greatly reduce this piracy – and perhaps even stop it altogether. Just eliminating software theft could boost sales by an average 20%, according to BSA/The Software Alliance, the anti-piracy trade group.

Autodesk had a weak first quarter because of interest expenses and the costs associated with adding more software subscribers. But I’m projecting a three-year earnings growth rate of 20%, meaning profits could double in a little more than 3.5 years.

NVIDIA Offers High Performance Graphics Processing

This $8.4 billion market cap firm makes some of the best graphics-processing semiconductors on the market today. Leveraging that expertise, NVIDIA Corp. (NasdaqGS: NVDA) developed a line of processors that fit into cloud computing.

The company refers to this field as “GPU computing,” which stands for graphics-processing unit. This area is focused on engineering and scientific applications. The approach lets users offload intensive calculations to the GPUs, allowing the application itself to run at optimum speed.

NVIDIA has aligned itself with cloud-delivery firms – including Amazon’s cloud-hosting business unit. It was a shrewd move for NVIDIA, given that Amazon dominates the field with a 35% market share for cloud-infrastructure services.

But NVIDIA isn’t taking any chances. It also works with SoftLayer, a privately held firm that International Business Machines Corp. (NYSE:IBM) just bought for a reported $2 billion.
That means NVIDIA is tightly aligned with the world’s top two cloud-hosting firms.

I like the performance stats. NVIDIA has a profit margin of about 13.5% and an ROE of nearly 13%. It grew first-quarter earnings by about 28%.

I’m projecting earnings growth of about 22%, meaning profits could double in about 3.25 years.

Given that we’re looking at a market sector researchers expect to grow to $241 billion by the end of the decade, we’ve barely scratched the surface of the Cloud’s potential with the five stocks we’ve looked at today.

This is going to be one profitable investing trend – and one where we’ll have plenty of opportunities to uncover the “double-your-money” stocks that are the Holy Grail of my wealth-building strategy for you.

These are the types of high-quality, growth-oriented investments I have in mind when I say that the road to wealth is paved with tech.

The global tech sector is without a doubt the world’s greatest wealth machine. And we’ll continue to work together to direct as much of that wealth right into your pocket.

Thanks to Dionisios and others who sent in these questions. I look forward to more collaborations with you all as we continue our search for tech-sector treasure …
See you next week …

That was almost double the 7.7% decline IDC had been expecting, and was also the biggest year-over-year free-fall since the market-intelligence firm started tracking PC shipments 20 years ago.

This wasn’t a one-time event, either: It marked the fourth straight quarter that worldwide PC shipments had fallen.

No wonder the pundits are talking about the “Death of the PC.”

After reading one of these high-tech eulogies, I’m betting that the last thing you want to do is to invest some of your carefully saved capital into any part of the semiconductor sector.

After all, those complex microchips are the “brains” of a computer: So if the PC sector is getting battered, it stands to reason that the chip sector would be getting thrashed, as well – meaning the best move is to stand clear of both.

Don’t make that mistake.

While PC stocks should be relegated to the tech-investor’s version of an isolation ward, semiconductor shares have been on a roll since the start of the year and will continue to be one of the best ways to generate big profits for some time to come.

If you buy the right ones, that is.

And today, I’m going to show you the best way to profit from this entire sector – by investing in this single stock.

Chip stocks have been on fire – so hot, in fact, that they’ve outperformed the overall U.S. stock market.

Through the end of May, the semi sector is up 20% – a return that’s actually 58% better than the 12.7% gain turned in by the Standard & Poor’s 500 during the same stretch.

The fact is that semiconductor sales have recovered strongly from a very tough 2012.

An industry trade group known as SEMI says North American semiconductor producers booked $1.17 billion in new orders in April. That represented a 6.4% improvement from the month before.

But here’s the really good news: That’s 63% better than the low of $719 million reported last November.

The industry’s “book-to-bill ratio” – a measure of whether the industry is expanding or contracting – came in at 1.08, meaning producers are taking in $108 in new orders for every $100 in old orders billed out.

And that’s bullish.

Behind every bullish move is a bullish catalyst. And I see one force in particular that’s fueling the semi sector’s strong rebound.

I’m talking, of course, about the “Mobile Wave,” a paradigm-shifting development that we’ve talked about a number of times in recent months.

We’re just a few years into this emerging market for hardware, software and services for today’s “on-the-go” crowd, but the Mobile Wave is already swamping the last great tech wave – the personal computer.

And when you look at the numbers, you can really see that there’s really never been anything like the explosive growth we’ve seen in smartphones and tablets.

Mobile devices are outselling PCs by a nearly 5-to1 ratio. And over the next three years, global spending on mobile devices will grow to $1.3 trillion – or 35% of the world’s high-tech economy.

Every single one of those devices has one thing in common with PCs: They owe their life … their very ability to function … to the semiconductor.

Clearly, the semiconductor industry offers a lot of investment opportunities. In fact, you could spend hours researching the players and toiling to separate the winners from the losers in this hyper-competitive market.

But during my 30 years of tech investing, I’ve learned there’s a great way to play an entire sector by purchasing a single stock – by investing in one type of company that can act as a “proxy” for the entire industry.

And if you pick the “right” stock, the gains you’ll pocket will dwarf what you might’ve earned by investing in a basket of stocks, an ETF or even a tech mutual fund.

The company you want to look for is a supplier to the industry you’re interested in.

And you want to be sure to identify the “best-in-class” participant.

You see, by picking the “right” supplier – typically one that sells to most everyone in that market – you will profit no matter who wins the ultimate market-share battle.

The trick, of course, is to identify a “specialist” that offers something the entire industry simply must have.

Enter Cadence Design Systems Inc. (NasdaqGS: CDNS). The San Jose-based company is a leader in providing software and other services that help chipmakers design their products and put them through key reliability tests – before actual production begins.

For Cadence this is a long-term growth market.

And now the Mobile Wave is creating built-in demand for its services.

You see, smartphones and tablets keep getting more powerful – though their overall size (the product “footprint” in tech parlance) is staying the same.

That’s why your mobile device runs thousands of times faster than the computers NASA used for the Project Apollo moonshots of the late 1960s.

And it’s all because of miniaturization…

As you can imagine, packing more components onto chips the size of postage stamps adds more complexity – and dramatically multiplies the number of things that can go wrong.

So Cadence has developed software that can detect all the potential problems in the design and manufacture of highly complex semiconductors.

What’s great is that this fast-growing midcap firm isn’t limiting itself to this one market, however lucrative it may be. Cadence offers similar services to companies making such consumer electronics as digital cameras and video recorders, DVD players and game consoles.

Each of these areas is becoming more complex as consumers demand more sophisticated applications, meaning they’re looking for such products as game consoles and big-screen TVs that also can access the Web.

Cadence is also getting a lift from the move to advanced digital devices in new electronics for cars, medical equipment, and broadband computer network routers.

Add it all up and Cadence says it addresses a global electronics market worth a $2 trillion.

That’s a recipe for strong growth, and the $4.3 billion market cap company brings a strong balance sheet to the fight. Cadence has annual sales of about $1.3 billion. Its profit margin is a hefty 35% and its return on stockholders’ equity (ROE) is a staggering 65%.

Based on the firm’s financial estimates, I project profit growth to average 24% over the next three years to five years. At that rate, earnings per share (EPS) would double in about three years.

If the company’s current P/E ratio of about 15 stays the same, the stock could roughly double from its current $15.25 a share.

Job One here at Strategic Tech Investor is to ferret out stocks that give you a chance to double your money at a manageable level of risk. If we keep doing that, we’ll be able to turn $25,000 into $250,000 faster than you ever thought possible.

Cadence offers investors that kind of growth. And it underscores – yet again – the value of the Five Tech-Wealth-Investing Rules that I’ve shared with you over the last several months.

After all, we wouldn’t have found Cadence without Rule No. 2, which tells us to “separate the signal from the noise.”

That’s just what we’ve done here – ignoring “the noise” (the eulogies for the PC) to home in on the real signal for profits (the rebound in chip orders).

We’ll continue to put those strategies to good use … so we can keep putting winners in your hands.

But I’m going to let you in on a secret of mine: Big-cap stocks – if you catch them at just the right point – can deliver even bigger returns than their small-cap counterparts … and often with less risk.

I sometimes jokingly refer to these lucrative tech plays as “stealth small caps.” They are one of my favorite profit opportunities to uncover. And when you can tie one of these stocks to a big trend or some other similarly powerful catalyst, the profit opportunity can be staggering.

In fact, I’m going to tell you about one such profit play today …

On Tuesday, I told you that cloud computing will generate the kind of windfall profit opportunities that investors can usually only dream about. This push to store everything from your company’s software and corporate records to your family photos out on the Web instead of on your desktop hard drive is creating a business opportunity that researchers say will explode by nearly 500% in a decade.

The fact is that cloud computing is one of those technology advances that is reshaping the business landscape. That means there will be a plethora of fast-growing, small-cap profit plays in areas like hosted data centers, computer memory systems, network security and data storage.

But a paradigm-shifting invention like cloud computing that’s powerful enough to give birth to lots of new little companies like that also has the power to give new life to some longstanding high-tech stalwarts – energizing their profit growth and causing their stock prices to rocket.

It’s like they’ve been given a dose of “digital Viagra.”

A “Target Rich” Environment

That’s good for us because it broadens our list of potential investments into a target-rich environment.

I usually think of the stocks of big tech firms as being “slow and steady.” There’s not as much risk as with a small-cap stock, but the downside is that you can’t expect the souped-up returns you expect from these small, emerging tech ventures.

But the cloud is quickly changing that dynamic. By moving data and applications either to the Web or to “private clouds” – data centers hosted by vendors – some big cap firms are being presented with completely new growth opportunities. That demonstrates the power of Rule No. 2 – ride the unstoppable trends – of my five-part system for building tech wealth.  

By reinvigorating the big-cap tech players – and giving them new markets to grow into – the cloud has created a “target-rich” environment of profit plays for us to choose from.

But there’s one in particular that you need to take a look at.

I’m talking about Adobe Systems Inc. (NasdaqGS: ADBE), the San Jose-based tech veteran that’s using the cloud to turn its business inside out.

Founded in 1982, the Silicon Valley firm is already one of the world’s most respected software firms. Most investors know Adobe as the maker of software that creates the popular PDF files found on the Internet and also used as email attachments.

Turns out, Adobe also is the world leader in software used by designers, artists and illustrators to create sales brochures, newsletters, catalogues magazines and web sites.

Its Photoshop suite is the industry standard for managing and editing pictures. Adobe Illustrator is the go-to software for creating, editing and managing graphics.

These are very complex packages with millions of lines of code that take two years to develop. And that doesn’t take into account all the other steps it has to go through to get the software to market such as burning CDs and packaging and shipping products to retailers.

Each of those steps is a profit killer …

Adobe is tapping this emerging tech venue as a brand-new, low-cost sales channel that will supercharge its growth and give the company small-cap profit potential.

Given that the firm brings in roughly $4.1 billion in sales of licensed and packaged software, just reducing costs by a mere 10% could mean a $400 million improvement in the bottom line.

By capitalizing on the benefits afforded by the cloud, Adobe will soon stop shipping physical products or allowing for digital downloads directly to customer desktops. Instead, clients will subscribe to Creative Cloud and pay a monthly fee to use a suite of software packages.

For its part, Adobe will host the software on its own computer servers and will offer customers discounts of about 40% for the first year of use. After that an annual contract for individuals will run about $50 a month.

Paying the monthly fees gives clients access to several software packages for one simple price as well as steady stream of “free” updates.

So, you can see that Adobe has a lot riding on its new Creative Cloud…

And there’s another big reason why the firm could get a big boost in sales. With Creative Cloud, Adobe will virtually eliminate piracy of its products.

The Business Software Alliance, a trade group, estimates that pirated products account for about one in five software packages in use as of 2011, the last year for which statistics were available.

Some of Adobe’s software can run $1,200 to $1,500. So, many smaller or medium-sized firms will buy one or two legal packages and then pass purloined copies around the office. You just can’t do that when the software lives in the cloud.

If Adobe just fell in with the industry’s average, Creative Cloud easily could expand sales by 20% simply by stopping all that theft in its tracks.

Add it all up, and Adobe’s move has winner written all over it…

Right now, Adobe has more than 500,000 Creative Cloud subscribers, a figure that is growing by 12,000 a week. But by the end of its fiscal year 2015, Adobe expects that number to increase to four million monthly users.

That’s a roughly eightfold increase in cloud users in just about three full years. Adobe launched the cloud platform roughly a year ago on a trial basis but announced the full switch over in early May.

The bottom line: Expect profits to start growing by more than 40% starting a few months.

And that’s just the beginning: I expect this move to the cloud to greatly improve Adobe’s profits in the long run.

But there’s a great entry point looming. As you can imagine, the shift to a new platform will hurt profits in the short term as the company ramps up spending on cloud equipment and infrastructure, allows sales discounts and takes restructuring charges.

Analysts polled by Thompson Reuters expect Adobe to earn about $311 million on about $4.1 billion in sales for the fiscal 2013 year that ends in November. That’s less than half of what it earned on roughly the same revenue the year before.

But starting in 2014, profits are set to explode…

Analysts expect earnings to more than double that year to about $697 million. After that, I’m projecting annual profit growth of about 22% a year – a 46% improvement from its 15% average over the past three years.

At that rate, profits could double in a little more than three years.

That’s a lot of earnings growth for a firm with a $21 billion market cap and whose stock trades at roughly $42 a share.

At the very least, the new cloud sales model will greatly enhance Adobe’s cash position. The company already does a great job here, bringing in more than $1 billion a year in free cash flow.

Thus, Adobe’s cloud strategy is set to make the firm into a crown jewel of the software industry. It already sells products that creative professionals working in every industry must have.

Now, its lowered cost structure and higher operating margins will turn it into a true profit powerhouse.

A little “digital Viagra” goes a long way – especially for a “stealth small cap.”

See you next week …

I told you it was one of the biggest profit opportunities that I’m following for you.

And I shared a potential “double-your-money” profit play that the “experts” seem to have missed.

As good as the “Mobile Wave” story might sound, it’s not the only hot sector that can substantially bolster your net worth.

Today I’m going to tell you about two other high-tech trends that I’m following – and each one represents the double-your-money profit opportunities that I’m always hunting for.

And I’ll give you a stock to watch with each one …

The trends that I’m talking about are “Big Data” and “Cloud Computing” and each is an example of the “unstoppable trends” that I search out in my Five Rules of High-Tech Wealth that I’ve been talking to you about over the last few weeks.

Let’s look at each of these two powerful developments.

And we’ll start with Big Data, a term that refers to technologies that make massive data sets – once inaccessible – available for analysis and use in decision-making.

According to a recent study by IBM, we now create 2.5 quintillion bytes of data each day.

But it’s what we do with all that data that truly matters.

And today Big Data has reached critical mass thanks to a confluence of forces: Ultra-fast computers and sophisticated mathematical formulas called algorithms are making it possible to use the data to solve some of our more complex challenges.

We’re talking about better storm warnings, tracking climate change, reducing crime, lowering energy use and solving the riddle of complex and lethal diseases just to name a few.

With so many avenues of discovery available to us, the Big Data trend is the definition of high growth and big profits. Analysts say that 90% of the data we work with was just created in the last two years alone. Forecasts call for this sector to grow tenfold to reach $50 billion between now and 2016.

Investment opportunities here range from hardware and software. Thus, I see lots of profit opportunities in this field.

That’s why I’m glad to tell you about Silicon Graphics International (Nasdaq: SGI). You may have heard of this small-cap tech leader in the past because it did the computer work needed to create the dinosaurs for the hit movie Jurassic Park.

Today, the company has gone through a restructuring that allowed it to focus heavily on Big Data tech. SGI sells ultra-fast computers and networking gear organizations need to crunch through massive amounts of data.

SGI’s high-performance products power such applications as design for aircraft and autos, modeling of new drugs, weather simulation and data analysis.

Over the last three years, SGI has averaged a growth rate of 31%. Just last quarter, it showed a 64% improvement in earnings per share (EPS). Not bad for a company with a $498 million market cap that trades at around $14 a share.

Now then, if they don’t know about it directly, a lot of investors are already making use of the third big trend I want to tell you about.

It’s called Cloud Computing. It’s a euphemism for “hosted services,” in which the software you use or the data you’re saving sits out on the Internet, instead of on the hard drive of your computer.

And it’s becoming more of a mainstream technology.

If you back up your computer data with an online service, or store your digital photos online, then you have already started using “the cloud” as an integral part of your life.

But backing up data is just the start …

The Web hasn’t just opened up global computer networks to Google searches, Amazon purchases and YouTube videos. It’s a game-changer that allows companies, government agencies and other organizations to save on their computer costs across the board.

They do so by tapping the power of the Cloud, which means using either the Web or off-site data centers hosted by third parties. These moves allow organizations to avoid the cost of building and running their own server farms, which are really just big rooms filled with computer servers.

Tapping into the cloud also allows corporate IT departments to boost worker productivity without buying and running their own computer servers and related gear.

That’s why cloud computing is a huge tech trend. Consider that the respected research firm Forrester predicts cloud computing is going to increase from about $41 billion in 2011 to $241 billion in 2020. That’s an increase of roughly 487% in just about a decade.

Now you know why tiny Datalink Corp. (NasdaqGG: DTLK) is investing so heavily in the cloud. This is the kind of small-cap firm I tell tech investors to try and find. The firm still has plenty of room to grow sales, earnings and its stock price.

Datalink greatly simplifies the movement to the cloud, a fact that appeals to risk-averse information technology managers. The firm’s On Demand Labs lets potential buyers design and test a cloud before they make any major investments.

Customers receive a highly detailed analysis of the conversion that includes lots of data about what to expect when they switch to the cloud. That simple message is helping it pick up lots of new clients.

With a market cap of about $210 million, the stock trades at about $11 a share. It has a forward Price/Earnings (P/E) ratio of just 9. The PEG ratio that measures growth prospects come in at just .5. Anything below 1 shows a high potential for growth.

In this year’s first quarter, earnings were off by more than 40% due to the costs associated with its expansion. But I’m not worried because I’m looking at its long-term track record.

Over the past three years, Datalink has grown its earnings per share by 68%. It also has a three-years-sales-growth rate of 38% and achieved record revenue in this year’s first quarter.

Both Datalink and SGI are very fast growers. At their present rates of growth, their share prices could double in less than three years.

And that’s what it’s all about here at Strategic Tech Investor — finding stocks with the power to double our money as we consistently build our net worth on the road to financial freedom.

If we achieve that goal, then we’ve done the job we set out to do.

The truth is, I can’t help it: I look at the forecasts, calculate all the money that can be made, and end up feeling as jazzed as can be about the windfall profits we can reap from this transformational trend.

And I’m not the only one who’s feeling this technology-fueled ebullience: The folks over at Amazon.com are clearly experiencing the same adrenalin-driven affliction.

Amazon, you see, is coming out with its own smartphone.

And not just any smartphone. Amazon’s entry into smartphone derby is going to be one cool mobile device – highlighted by a 3D screen that will display photos so realistically that you’ll want to just reach out and touch them.

Why in the world, you might ask, is an “e-tailer” entering the wireless-phone business?

Just look at the numbers.

One billion consumers will have smartphones by 2016, says a brand-new report by Forrester Research. American consumers alone will own 257 million smartphones and 126 million tablets.

The worldwide work force will be revolutionized by the Mobile Wave: By 2016, 350 million workers around the world will be using smartphones – and 200 million of those folks will “bring their own” … even covering half the costs themselves.

But here’s the capper: Over the next three years, global spending on the Mobile Wave will grow to $1.3 trillion – or 35% of the world technology economy.

Now you can see why Amazon wants a slice of that pie.

And you should feel the same way: The Mobile Wave is one of the single-best ways for you to generate life-altering profits in just a few short years.

But Amazon isn’t the pony you want to bet on – it’s more of a longshot. The stock is overpriced, and the company is so big that even a hit product won’t meaningfully benefit sales or profits.

There are actually much easier ways to double or even triple your money over the next two, three or four years – as the mobile wave hits its stride.

And I’m going to show you one of my favorite ones today …

The Mobile Wave: The Planet’s Most Investable Tech Trend

There’s never been anything quite like the Mobile Wave.

Just look what it’s done to the PC – the last tech device that really revolutionized the world.

Global PC sales totaled 76.3 million units during the first quarter of the year, according to researcher IDC.

That sounds like a lot until you compare it with global smartphone shipments – which came in at 373 million units during the same period, says market research firm Strategy Analytics.

That’s about a 5-1 ratio… and is what I call decisive.

So we know that a lot of smartphones are being sold. And we even know the companies that are selling them – firms like Apple Inc., HTC, Samsung… and soon Amazon.

But here’s where you need to separate opportunity from hype – the essence of Rule No. 2 on our list of the Five Tech-Investing-Wealth Rules we’ve talked about at length over the past few weeks. You see, most of the companies that I listed here aren’t “pure play” investments, meaning we’d face the same profit challenges that I just detailed for Amazon.

The best way to make big money from the Mobile Wave is to identify class-of-the-field supplier firms. These are the entrants who provide such key “enabling” technologies as software, applications, bandwidth, security and digital-payment systems.

But the best-of-breed profit plays here may be the components firms – the ventures that make and market the parts that go inside the smartphones themselves.

In other words … the specialists.

I like these companies a lot because the best ones have unique, patented technologies, and “play the field” by providing those components to multiple manufacturers. The great thing about that is no matter which phone is tearing up the market, we win big.

Take the case of InvenSense Inc. (NYSE: INVN), a double-your-money profit opportunity that meets all five of our rules for generating high-tech wealth.

As a Mobile Wave participant, this components provider easily meets Rule No. 3 – by riding an unstoppable trend.

In fact, InvenSense actually rides two. The Sunnyvale-based firm is all about a critical area known as “motion sensing” – a newly emergent sub-trend that’s fueling the Mobile Wave. And InvenSense know-how doesn’t just go into smartphones; you’ll find it in tablet computers and a wide range of consumer electronics – including gaming consoles and smart TVs that connect to the Internet.

InvenSense forged its reputation on older tech – in gaming consoles like those for Nintendo’s original Wii. That’s no longer a growth sector.

But mobile is, and thanks to InvenSense’s operational excellence (Rule No. 1), the “Wave” today accounts for 80% of the company’s sales.

The company actually made itself very relevant by focusing on the growth portions of the mobile wave (Rule No. 4).

The main reason smartphones and tablets have exploded in popularity is that businesses and consumers can do so many things with them –  thanks to the “mobile apps” that let you play games, get driving directions, make reservations, watch your favorite movie or TV show, shop for deals, “drive” a steam locomotive or the RMS Titanic – the possibilities are endless.

The worldwide mobile apps market is projected to zoom from about $18 billion in 2012 to $56 billion in 2015, and InvenSense has two key technologies that make apps possible.

One is gyroscopes – a big deal because those tiny gadgets you can’t actually see are what allow you to turn your smart phone upside down … and have the screen turn with it. InvenSense itself says that shipments of gyroscopes used in smartphones could grow to 358 million units next year, up from 49 million back in 2010.

The other InvenSense contribution is embedded compasses.

I have several apps on my phone that need to know pretty much my exact location to fully function. And for that you need an embedded compass.

(If you don’t think this is vital, think about how you’d get turn-by-turn walking or driving directions with no embedded compass. And how do you find your way to the restaurant where you have a reservation five minutes from now if your phone doesn’t know where you are?)

InvenSense considers its technology to be so unique that it this week filed a patent-infringement lawsuit against STMicroelectronics NV, claiming the Swiss firm ripped off its motion-sensor technology.

But don’t let that patent action – which has become much more commonplace in recent years -obscure the key point here: InvenSense is a stock that has double-your-money potential (Rule No. 5).

At a price of roughly $13 a share – about one-twentieth of Amazon’s – InvenSense has a market value of $1.1 billion. And it’s got much more of an upside than the e-tailer-turned-smartphone-venture.

INVN has both a profit margin and a return on stockholders’ equity (ROE) of 24%. It trades at a forward Price/Earnings (P/E) ratio of only 14. It has $175 million cash on hand and no debt.

Thus, InvenSense has everything we’re looking for in a strategic tech investment: It’s in a hot sector, is operationally excellent and has great fundamentals.

It’s also a fast-grower.

Based on my analysis, I’m forecasting the company will increase earnings at an average annual rate of 25% over the next five years. That means the stock could very well double in less than three.

And doubling your money at a reasonable level of risk is the run for the roses here at the Strategic Tech Investor – the ultimate goal and the path we want to travel as we work together to build your wealth.

Wait ’til you see what we have planned for you next …

And based on the great feedback I’ve gotten from you over my last several columns, you’re already looking for ways to build your net worth as fast as possible.

In fact, I’ve received dozens of comments regarding my five-part tech investing strategy for turning $25,000 into $250,000 in just a few short years.

Many of you also wrote to ask me questions about my views on investing trends as well as tips and strategies to take advantage of the high-tech bull market (one that I think will last for years).

I love these questions. It helps me zero in on the type of investments that you find most relevant today.

And that’s the whole point of Strategic Tech Investor – uncoveringprofit opportunities you can’t find anywhere else and ones you can act on immediately.

So let’s jump into some of the recent questions I’ve received. 

Let’s start with the column that ran on Tuesday, May 7. It was about the big gains I see ahead for Repligen Corp. (Nasdaq:RGEN) a stock that is poised to double in price.

Question (Q): Thanks again for the great writing about technology and “disruptive” companies. This time, seriously, I added Repligen Corp. to my portfolios. ~ Richard C.

Answer (A) Glad to be of help. Repligen is a great company. One of the many things I like about this play is that it’s a true “pick-and-shovel” opportunity.

Maybe it’s because I live in California but I’m constantly reminded how the guys who sold picks, shovels, dungarees and other supplies to the miners made more than most of the folks who joined the 49ers looking for gold.

Priced at $9 a share, Repligen makes a unique purifying agent known as Protein A. As such it has a stranglehold on a molecule that Big Pharma must have as an ingredient in a wide range of new drugs. As it stands, Repligen supplies over 98% of Protein A to the world market. And Repligen’s sector, called biologics, is expected to double to $240 billion in sales by the end of the decade.

Q. I have been following your tech and biotech updates for some time now and I love them. You mentioned in one of your replies to a reader that you have a more detailed paid for subscription service, would you be able to send me the details. ~ Adrian N.

A. Thanks for the kind words regarding my writing style, research and unique-five party strategy for building tech wealth. Much appreciated.

My advisory service is called Radical Technology Profits. As the term implies, it’s focused on cutting-edge high tech that will bring subscribers huge gains.

We’ve had a number of recent wins. Several of the stocks in that portfolio have hit the top 20 advancers of their respective exchanges over the last several weeks including one that took the top spot.

The portfolio includes a biotech stock that is up 75% in a little more than four months and a chip maker that has become the turnaround tech stock to own, rallying 48% in a month.

If you’d like more information about Radical Technology Profits please visit www.moneymappress.com  or contact customer service at 855-509-6600. They’ll be more than happy to help you out.

Now, let’s turn to my May 5 column on Rule No. 5: How to find stocks that can double your money. 

Q. I would appreciate any associated option recommendation with any stock you recommend if feasible ~ Albert M.

A. Alex, your question shows that you are a very savvy investor. Actually, it would be more accurate for me to use the word “trader” as it relates to options.

No doubt, options are a great way to juice up your portfolio. However, this service is not specifically about trading, it’s about strategic investing. By definition that means we are going to recommend holding stocks anywhere from several months to a few years to take advantage of the huge tech innovations hitting the markets today.

I have a couple of concerns about average individual investors (the audience for this service) trying to play options. First, these can often be complex trades. Second, they can be much more volatile than the equities themselves and are better handled with an aggressive trading service.

More to the point, however, thousands of investors have lost money attending expensive “seminars” on how to trade options. I’m concerned that if I start talking about trading options, some readers may be tempted to invest money in these courses and actually do more harm than good. I believe most investors will do better over the long haul sticking with a strategic approach to tech shares.

My April 23rd column dealt with Rule No. 4: focus on growth companies drew a number of comments and questions.

Q. You made more sense in a “to the point” manner than those just trying to do so — and taking 20 pages or a 30-minute video to “try.” Thank you!  Keep it up. ~ Ron I.

A. Ron, I’m glad you like the approach I’m taking. The idea here is to give you the tools you need to improve your net worth. The more plain spoken the better.

I’m really upbeat about the many opportunities I see ahead for tech investing. I’ve been involved in this sector for the past 30 years and I can’t think of a more exciting time than right now.

Many complex layers of “disruptive” technologies (paradigm shifting changes) are coming together to create some of the biggest wealth building opportunities of the last fifty years.

I don’t want you to miss any of them.

My readers have already been given dozens of chances to make a bundle on the major trends I’m tracking today including…Exotic Materials (such as graphene and silicon)… Biotech Advances (like synthetic vaccines)… and the highly lucrative Mobile Wave, just to name a few.

In the upcoming weeks and months, I’ll be telling you a whole lot more about these trends and the best ways to play them.

There are literally dozens of companies that are improving the world around us and poised to deliver life-changing gains.

I plan to tell you about all of them…

Q. I am working as Electrical Engineer in the telecommunication field. I am always interested in high tech companies. I like investing in tech companies. ~ Lai T.

A. Lai, you’ve picked a great field of investing. Truth be told, the road to wealth is paved with high tech. This industry has brought us a steady stream of innovations that made investors rich.

I’m talking about everything from the light bulb to the radio to the automobile. Just think about all the money savvy investors made at the dawn of semiconductors, computers, and software.

Now, we’re riding such wealth-creating trends as mobile technology, 3D printing, and cloud computing. And that’s just to name a few hot sectors.

Tech stocks are a major driving force in every bull market because they are big factors in new stocks coming out as IPOs and because these are growth firms that throw off a lot of cash.

And that’s what Strategic Tech Investor is all about, finding the tech stocks that can deliver big, consistent gains that will really improve your net worth.

As I said, I will use this space every week to give you the most vital insights on mastering the tech markets.

My mission is to reveal the biggest trends and show you how you can profit from them consistently.  Stay tuned.

[Editor’s Note: When Michael says “I want to hear from you,” he means what he says. Do you have any follow-up questions to any of our columns? Would you like to offer feedback? Is there an area of tech you’d like to see more about? Don’t be afraid to drop us a line here at customerservice@strategictechinvestor.comWe are always glad to hear from you.

So far this year, for instance, the iShares NASDAQ Biotechnology Index (NASDAQ: IBB) – an ETF that’s a great proxy for the sector – has zoomed 28.2%, more than double the 13.59% SPDR S&P 500 Index ETF (NYSEArca: SPY). The IBB gained 31% last year. And a lot of individual biotech stocks have actually doubled, tripled or more – the Holy-Grail type of gains that high-tech investors crave.

But there’s a problem.

You see, not all biotech stocks are created equal.

It can take 10 years and $1 billion or more to take a new drug from the lab, run it through FDA testing, and get it approved for use in the marketplace. Each of those steps along that journey poses a risk of delay, rejection or outright failure. And bad news in a high-growth stock can ignite a 40%, 60% or even 80% drop in the price of your stock – savaging your savings or retirement in the process.

But there’s a way around this: A strategy that can avoid some of the biotech sector’s biggest risks, while giving you access to the high growth and high returns. And one that still gives us the chance to find double-your-money stocks – the chief objective of the Five Tech-Wealth-Investing Rules that I’ve introduced you to in recent weeks.

On Friday, I promised to unveil just such a stock early this week.

And today I’m keeping my word.

With a market value of $275 million, the company I’m recommending today is a small-cap play – and affords us the double-your-money potential of small-market plays. But because this company is more of an indirect play on the biotech sector (it provides the high-value ingredients that other firms need to have as they develop their own biological compounds), it gives us the best of both worlds: We get the high-growth rates of biotech, even as we sidestep the typical risks faced by companies that have to pursue drug approvals through the FDA.

We call this kind of stock a “pick-and-shovel play.” The company is Repligen Corp. (NasdaqGS: RGEN). And believe me when I tell you that you’d be hard-pressed to find a better candidate than this small-cap leader.

Repligen is a leading provider of a substance known as “Protein A” – which is used to produce several leading drugs. For instance, it’s used to separate and purify disease-fighters known as “monoclonal antibodies.”

This is a complex field of science. So, let me break it down a bit for you.

Protein A comes from bacteria that live in human respiratory tracts and on the skin. Repligen uses this protein because it has novel qualities that help it bind to antibodies.

In turn, these are called “monoclonals” because they are replicated as exact clones of specific antibodies needed to help fight disease. By cloning different antibodies, scientists can create drugs that target a wide range of conditions.

This unique approach gives Repligen access to some of the most important drugs on the market today. And it places the firm squarely in a large and growing market.

We’re talking about a segment of the drug industry known as “biologics” because they’re derived from the cells of mammals. In 2010, the last year for which good data was available, there were nearly 1,000 clinical trials under way in this field.

The sector includes protein-based drugs like monoclonal antibodies and vaccines. Analysts predict the biologics market will nearly double in sales to roughly $240 billion by the end of this decade.

A full third of that total will go to monoclonals.

And that’s good news for Repligen and its shareholders. Already, the firm is a supplier for such leading drugs as:

• Avastin, used to treat colon cancer.
• Herceptin, a treatment for breast cancer.
• And Humira, prescribed for rheumatoid arthritis and several other conditions.

The stock trades at slightly less than $9 a share. But I believe it can easily double in price.

Let me show you how by running the stock through the five “filters” that make up my tech-investing strategy.

• Rule No. 1: Great Companies Have Great Operations: We look for superbly run companies with exceptional leadership. And Repligen’s management team is as good as they come. Repligen has a crack management team. CEO Walter C. Herlihy assumed the job back in March 1996. Before that he logged years in senior management positions in the industry. This guy knows his science. He has a bachelor’s from Cornell University and a doctorate in chemistry from MIT.

  And the company continues to recruit top talent. Late last Fall, for instance, Repligen hired an exec named Jonathan I. Lieber to become the company’s chief financial officer. Lieber had most recently been the CFO of Xcellerex Inc., another supplier of bioprocessing products and disposable bio-manufacturing technologies – meaning he has hands-on experience with the very industry that Repligen serves.

  Because Xcellerex was sold to GE Healthcare, Lieber has experience in dealmaking (a possible future sale of Repligen could give you a windfall profit on the stock). With the company he worked at before Xcellerex, he was actually involved with the IPO. And before that he worked as an investment banker in the biotech area. One thing my years in technology have taught me is that talent wins out. So this guy appears to be a heavy hitter – and a great hire for Repligen. I love to see companies bring in blue-chip talent.

• Rule No. 2: Separate the Signal From the Noise: To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals. With a 22% profit margin and a return on stockholders’ equity (ROE) of nearly 19%, Repligen has those strong fundamentals. The company has $54 million in cash and cash equivalents on hand and almost no debt.

• Rule No. 3: Ride the Unstoppable Trends: Look for stocks in red-hot sectors because they offer the best chance for life-changing gains. There’s no question that Repligen has this base covered as well. We demonstrated just how hot biotech has been. And the catalysts are clear: We have millions of new people born each year around the world and average lifespans are getting much longer. That translates into growth that will last for at least several decades. And if Big Pharma wants to target the growing biologics market, odds are pretty strong that they’ll have to use Repligen’s Protein A.

• Rule No. 4: Focus on Growth: Companies that have the strongest growth rates almost always offer the highest stock returns. Over the past three years, Repligen’s sales have grown at an average annual rate of 39% – a stunning showing on the “top line.” Of course the numbers vary on a quarterly basis, but for the first three months of this year, sales rose by 28%. And Repligen keeps striking new deals to make sure it’s adding revenue for years to come. In January it reached a new sales accord with drug giant Pfizer Inc. This program alone is expected to bring as much as $70 million in milestone payments and an undisclosed stream of future royalty payments.

• Rule No. 5: Target Stocks That Can Double Your Money: This is where we look at Repligen’s earnings growth and see how long it will take the firm to double profits. By doing that, we can calculate about how long it should take for the stock to double in price. I’ve gone through the firm’s financials in detail and I’m projecting earnings per share will grow by an average 24% over the next five years. Now we use what I call my doubling calculator. Mathematicians call it the “Rule of 72.” Let’s divide the compound growth rate of 24 into the number 72. We find that it should take roughly three years for Repligen’s stock to give us 100% gains – doubling our investment.

We have one more thing going for us with this stock – a potential catalyst that a lot of Wall Street players aren’t considering.

I’m talking about Repligen’s low stock price – of less than $10 a share.

A large number of institutions – either by choice, or as defined by their investment charter – won’t touch a stock under $10 … no matter how alluring the company’s potential might be.

But once the stock hits that $10 “trigger point” – meaning it’s become “institutional grade” – expect to see a large number of sell-siders “initiate coverage” or issue “upgrades” to their ratings. Although we never follow Wall Street’s lead, we’re always happy to see them deliver liquidity to a stock that we’ve already recommended, and that you’ve had the opportunity to buy.

This new institutional support will turbocharge the rally, and could ignite a much-stronger-than-expected updraft in Repligen’s stock price.

For investors looking to magnify their personal net worth, this is the kind of stock you dream of finding – an undiscovered small-cap in a high-growth business… and that can double your investment in surprisingly short order.

Action to take: buy Repligen Corp. (NasdaqGS: RGEN) and plan to hold this stock for at least a year.