I See a Major Tech Boom in the Year’s Second Half

20 | By Michael A. Robinson

If you listen to the market pundits right now, we’re standing on our tiptoes … right at the edge of a cliff.

The U.S. economy is weak and just can’t seem to shift into a higher gear.

Investors are panicked that China – a key to global growth – has an economy that’s slowing dramatically and a banking system that’s poised to explode.

Wall Street is terrified that the U.S. Federal Reserve will stop printing money – removing the catalyst that’s been directly responsible for the greatest bull-market rebound in history.

And we seem to have reached a point where stocks advance one day only to plunge the next – creating a “whipsaw” market with no real potential for profit.

So allow me to make a bold prediction.

Tech stocks are getting ready to stage a major rally through the end of this year.

That means there’s a remarkable profit opportunity for investors who make the right moves now.

And today I’m going to show you the best moves that I see.

Rule No. 2 of my five-part tech-wealth strategy tells us to “separate the signal from the noise.”

This is a great example of why that’s so important.

As we’ve seen, there’s a heck of a lot of noise right now. And the market pundits who are so good at influencing the opinions of “regular” investors are sensing the wrong signal right now – and are going to steer folks the wrong way, as a result.

Don’t let them steer you wrong, too.

One of the biggest worries right now is the U.S. economy. Despite a quantitative easing (QE) program that’s pumped trillions of dollars into the market over the past several years, economic growth is still tepid and unemployment alarmingly high.

Although growth and unemployment remain big challenges for Washington, they’re actually potential benefits for the tech industry – and will help certain firms book lots of new business.

You see, faced with 2% GDP growth, companies that want to boost profits really only have one option – they need to boost productivity. The only way to do that is to invest in efficiency-boosting technology.

Fortunately, U.S. companies are sitting on mountains of cash, meaning they have the money to invest in such productivity-enhancing hardware, software and services.

That’s why not a single reputable analyst at this point has predicted even a modest slowdown in tech spending between now and the end of the year.

Their forecasts are calling for big spending increases in such areas as Cloud Computing, Big-Data Analytics and Mobile-Communications Tools for telecommuting employees.

These are the products and services that companies need to help them make more money. And those are the three sectors that will do particularly well between now and the end of the year.

The key for us, then, is to identify the biggest beneficiaries.

And that’s just what we’ve done for you today.

Let’s start by looking at the latest developments with the Mobile Revolution …

M-Commerce Will Add Muscle

If you really want to understand what’s going on with the mobile revolution, you have to look beyond mere hardware sales.

Now it’s true that smartphones and tablets are outselling PCs by a 5-to-1 margin.

But that’s not the only proof that this is an unstoppable trend…

Look, for example, at mobile apps. Researcher MarketsandMarkets predicts the value of mobile apps will more than triple – from the $7 billion sold in 2010 to $25 billion in 2015.

And mobile commerce – known by the pros as “m-commerce” – is on a roll, too. This mobile subset of e-commerce jumped 31% in this year’s first quarter to reach $5.9 billion. That compares with only a tepid 1% increase in spending at brick-and-mortar stores.

When it comes to mobile, I have two favorites for the next six months: investments InterDigital Inc. (NasdaqGS: IDCC) and ARM Holdings PLC (NasdaqGS: ARMH).

Let’s look at them both.

InterDigital Inc. (NasdaqGS: IDCC) doesn’t produce physical products. But it’s still a unique force in the industry. That’s because this mid-cap player makes mobile devices more power-efficient, and boosts the quality of their connections.

It’s so innovative, in fact, that it adds 1,000 patents to its technology portfolio every year.

The company has a market cap of $1.8 billion and a profit margin of 38%. IDCC has a return on equity (ROE) of 51% and generates more than $200 million a year in free cash flow (FCF). The stock trades at about $43.50 a share.

ARM Holdings PLC (NasdaqGS: ARMH) is a great long-term play on the entire mobile sector. It’s a high-margin outfit that designs mobile microchips that semiconductor firms then build and sell to the smartphone makers.

With a market cap of $16 billion, ARM has a 28% profit margin and grew its most recent quarterly earnings by 38%. The stock trades at about $35.50 a share.

The Cloud is a Clear Profit Play

The second half of this year will mark a tipping point for the rapidly moving world of cloud computing.

In fact, a survey by North Bridge Venture Partners released last week estimates the cloud sector will have a value of $158.8 billion by the end of next year. That’s an increase of 126.5% from 2011.

Many pundits claim the cloud isn’t as pervasive as tech firms would have us believe. Well, put that notion to rest. The North Bridge survey found that 75% of those polled say they will be using some form of the cloud by the end of this year.

And it’s only going to go up from there – for good reason. Firms throughout the economy are finding it’s much cheaper to move to the “cloud” – the term for hosted data and applications – than it would be to build and run their own computer networks.

The trend bodes well for nimble players like Akamai Technologies Inc. (NASDAQ:AKAM) or EMC Corp. (NYSE:EMC).

Akamai is a U.K-based firm that is a straight-up play on cloud computing. It makes equipment that improves the delivery of content into and out of the cloud.

With a market cap of $7.2 billion, Akamai has a 16% profit margin and grew earnings by 65% last quarter. Its stock trades at about $40 a share.

And keep an eye on EMC. It’s a leader in data storage products that are integral to cloud technology. It also sells infrastructure services that include storage, data backup and delivery of computer applications.

EMC has a market cap of $51 billion. The company has grown earnings per share by 19% over the past three years and brings in more than $4 billion a year in free cash flow. The stock trades at roughly $24 a share.

Big Data Will Yield Big Profits

If you’ve bought anything online in the last couple of years, odds are great you tapped into the fast-moving field of Big Data.

Big Data lets companies, organizations and even law-enforcement agencies make sense of massive amounts of unstructured data to find patterns too complex for humans to spot on their own.

Big Data allows companies to sift through billions of transactions a day to check them for fraud. It will help emergency management organizations respond more quickly after a natural disaster or other catastrophe.

It’s the perfect growth field for a data-driven world.

And it’s definitely a growth business.

You see, 90% of the data in the world was just created in the last two years. And forecasts call for this sector to grow tenfold – reaching $50 billion by 2016.

That’s why you have to keep an eye on companies like Teradata Corp. (NYSE: TDC) and Cray Inc. (NasdaqGS: CRAY).

Teradata is the world leader in data warehousing and sells analytic tools customers need to make sense of that information.

Teradata boasts 100% of the world’s top telecoms and airlines and 80% of the top logistics firms as clients. It has a market cap of $7.8 billion, and has a return on equity of 22%. It has grown earnings per share (EPS) by 20% over the past three years. The stock trades at $48.25.

For its part, Cray makes some of the world’s fastest supercomputers. Crunching through massive amounts of data at lightning speed requires the kinds of high-performance platforms Cray has been making for years.

Cray has a return on shareholders’ equity of 58%, has $238 million in cash on hand and no debt. The company has a market cap of $742 million and the stock trades at about $19.80 a share.

Each of these companies offers technology products or services that global firms must have if they want to survive and thrive.

Each of these three niches – m-commerce, cloud computing and Big Data – are big-growth opportunities that are early enough in their lifecycles to afford us the kinds of profit opportunities that you just don’t find very often.

The road to wealth is paved by tech.

And those who make the moves we’ve talked about today are investing right at the starting line.

Editor’s Note: Your feedback is very important. As always, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.

20 Responses to I See a Major Tech Boom in the Year’s Second Half

  1. John Lofgren says:

    AKAM, ARHM, EMC I have traded. CRAY, IDCC, TDC I will have to watch.

    GE is or has invested in EMC which is on the up. I do believe there is some up side to look at here..

  2. Ray Clemens says:

    Hi Michale;

    Are you suggesting that we should buy these stocks now? Or would you advise when and what to buy when the time is right . I enjoy your commentary very much, lots of great information to digest. I thank you.



  3. Rex Uz says:

    Traded and sold XONE at $27, a stupid move, considering I posted reasons it would outperform SSYS and DDD, long before other people caught up with the potentials.
    Did the same thing with IRBT at $24. I am in PAIN.
    What do you see for these two players to enter at current prices for the long haul?
    Also, TXTR is a screaming buy right now
    Your input please?

  4. Chris12 says:

    I am relatively new to investing and my biggest problem with investing in tech firms is that most of them do NOT pay a dividend, or if they do it’s very small. As I understand it, this is due to the fact that they have to invest huge amounts of capital in R&D and/or manufacturing to keep up with the fast pace of technological breakthroughs from competitors and for this reason these companies decide to not pay a dividend, and rather take their profits and re-invest them back into R&D and expansions of their manufacturing base, etc.

    What bothers me about this is that this (in my opinion, but apparently not in others) makes their stocks overvalued. Sure they can increase massively in value in the medium to long term, but what are you actually buying when you buy shares in any company that does not pay a dividend? It’s like using paper money not backed by gold. Pretty much totally worthless if it wasn’t trusted by millions of fools who put their trust in it every day despite it being worthless.

    Why buy a share of a company that refuses to then pay you a share of the profits?
    Simply because the value of that share might go up some day, because of the hope, that the company might increase profits, and grow, and maybe, one day, pay a nice dividend?
    I really don’t get that!!!

    In my opinion tech companies should at least pay a small dividend, otherwise their shares are virtually worthless – in my layman’s opinion of course. Any company that doesn’t pay some sort of dividend – even a tiny one, is almost worthless. At least Microsoft pays a dividend… (last time I checked)

    • bd says:

      emc looks the most interesting owing to its chart–basing formation– , and that it pays a dividend, though this is lower than I would wish for. Both chart formation and good dividend are important.

    • Mark Neuenschwander says:

      I agree with his comments about companies that do not pay dividends. Are they really reliable are they just hype!

    • andre says:

      Chris12. You said that you are new to trading. Yet you go into all the reasons why investing in certain stocks don’t make sense. I’d take the time to learn from someone who been trading successfully for a long time before applying the theories. Be humble my friend OR watch your account fade into the darkness!

  5. Marc Rudick says:

    Hi,i have enjoyed some of your R and A thru my S and A sub. for about 4 mos and liked what I have seen. Now you are one ,or will be one of my new Flex partners. LOVE THIS ONE. HERE’S TO YOU

  6. Diana says:

    Dividends aren’t everything. It depends on what kind of trader you are. Long term, swing, or day trader. I swing trade, and although I consider a dividend a plus, my focus is on momentum, because then I can clean up in a few weeks or months and may not stick around for a dividend long enough. Great tech ideas, I will be researching them. Thanks:-) Diana

  7. john beardslee says:

    Thanks for the information, I will follow your recommendations and see how these stock perform.

  8. ElectroPig Von Fökkengrüüven says:

    I say, buy whatever you want to buy, and watch closely until September after the German elections. If after the elections conclude, and Germany returns to the Mark, this may cause the Euro to implode, which will take down the US dollar and all US dollar-based or tied currencies with it.

    Or buy anything in Iceland…they’re the only known country not owned by foreign bankers at the moment, so this is somewhere to look towards.

  9. Natalie I Giroux says:

    Hi Micheal,
    I find your articles and info on stocks that are potentially lucrative very informative and would also like to see your advice on what to buy, at what price and at what time. That would be very much appreciated. Thanks a lot, you are very helpful, keep up the good work..

  10. Bryan Ward says:

    How come ARMH has performed dismally over the last few months ?
    Could it be their relationship with AAPL

  11. Linda says:

    This was a very good and interesting article. I do have shares of emc, hoping it does well. Thank you

  12. Tom says:

    Will look at these stocks you recommended. Intel pays a good dividend, but seems to not go up much in value over the short or long haul Other Tech stocks pay a divident if you look for them

  13. nove says:

    Microsoft started paying dividends in 2003, but was founded in 1975. Tech companies need cash in order to expand and to sustain their investments, investments which will transform them into huge dividend corporations.

  14. Henry Lock says:

    At age 85 and new to the market I began by looking at zero carbón energy providers but soon found most of them were behind the times and needing new technology. So Now I am moving towards companies who offer just that.

  15. midge rivers says:

    Warren Buffet as Berkshire Hathaway has never paid a dividend. He figures he can reinvest the money and grow the value better than his investors can.

    Those who got in early eventually had to sell a share to get their retirement money…$100,000 per share (or more or less, depending on when they sold).

    He made a lot of ordinary Omaha, Neb. neighbors millionaires.

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