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The Technology sector has been a laggard in 2012, the total return, in 2012 was only 9.7%, while the appreciation of the Russell 3000 index in the same period was 13.98%. Nevertheless, it is possible to find promising candidates among the stocks in this sector.

Stock Sectors' Total Returns, in 2012, are shown in the chart below:

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Chart: finviz.com

I have searched for very profitable companies with very strong growth prospects among the Technology sector. Those stocks would have to show a very low debt and very low PEG ratios. I also looked for companies that are in short-term uptrend, in mid-term uptrend and in long-term uptrend. Stocks in an uptrend are performing well and are in a buying mode.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.

The screen's formula requires all stocks to comply with all following demands:

  1. Price to free cash flow is less than 15.
  2. Average annual earnings growth estimates for the next five years is greater than 15%.
  3. The PEG Ratio is less than 0.80.
  4. Debt to equity is less than 0.25.
  5. Stock price is above 20-day simple moving average (short-term uptrend).
  6. Stock price is above 50-day simple moving average (mid-term uptrend).
  7. Stock price is above 200-day simple moving average (long-term uptrend).

After running this screen on January 02, 2013, before the market open, I obtained as results the five following stocks:

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Blucora, Inc. (NASDAQ:BCOR)

Blucora, Inc., together with its subsidiaries, provides white label search and monetization solutions to Web publishers worldwide.

Blucora has a very low debt (the total debt to equity is only 0.18) and the forward P/E is at 16.20, the PEG ratio is very low at 0.77. The price to free cash flow for the trailing 12 months is very low at 13.27. The average annual earnings growth for the past five years was very high at 46.58% and the average annual earnings growth estimates for the next five years is also quite high at 20%. The stock price is 5.98% above its 20-day simple moving average, 1.14% above its 50-day simple moving average and 9.48% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. The stock is trading 15.67% below its 52-week high and has 37.5% upside potential based on the consensus mean target price of $21.60. Analysts recommend the stock; among the four analysts covering the stock, three rate it as a strong buy or as a buy. On November 01, 2012, Blucora reported its 3Q financial results (here), which beat expectations on EPS and on revenue. On that occasion, Bill Ruckelshaus, President and Chief Executive Officer of Blucora said:

I am pleased to report Blucora had another quarter of strong performance, driven by great results from our online search business. I am also pleased with the progress our tax preparation business has made during the offseason to improve the core product and position for long-term growth.

All these factors -- the low multiples, the strong growth prospects, the very good 3Q financial results and the fact that the stock is in an uptrend -- make BCOR stock quite attractive.

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Chart: finviz.com

Cray Inc. (NASDAQ:CRAY)

Cray Inc., together with its subsidiaries, designs, develops, manufactures, markets, and services high-performance computing systems, known as supercomputers.

Cray has no debt at all and the trailing P/E is very low at 3.35, the PEG ratio is very low at 0.17. The price to free cash flow for the trailing 12 months is very low at 14.12 and the average annual earnings growth estimates for the next five years is very high at 20%. The stock price is 6.15% above its 20-day simple moving average, 16.13% above its 50-day simple moving average and 37.89% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On November 9, Cray reported its 3Q financial results (here), which beat expectations on EPS and on revenue. Compared with the prior-year quarter, revenue dropped slightly and GAAP loss per share dropped, margins expanded across the board. Revenue for the quarter fell 3% to $35.7 million from $36.7 million in the same quarter last year and the company had a net loss of 14 cents per share; that compares with a loss of 35 cents per share in the same quarter last year. Analysts polled by FactSet were expecting the company to post a loss of 50 cents per share on revenue of $30 million.

All these factors - the cheap valuation, the strong growth prospects, the better than expected 3Q financial results and the fact that the stock is in an uptrend -- make CRAY stock quite attractive.

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Chart: finviz.com

Dice Holdings, Inc. (NYSE:DHX)

Dice Holdings, Inc. provides specialized career Websites and career fairs for professional communities.

Dice Holdings has a very low debt (the total debt to equity is only 0.22) and the forward P/E is quite low at 14.57. The PEG ratio is very low at 0.79. The price to free cash flow for the trailing 12 months is very low at 11.64. DHX records strong growth on all key parameters; the average annual earnings growth for the past five years was very high at 22.73%, the average annual sales growth for the past five years was also quite high at 16.52% and the average annual earnings growth estimates for the next five years is quite high at 19.27%. The stock price is 5.41% above its 20-day simple moving average, 6.62% above its 50-day simple moving average and 2.62% above its 200-day simple moving average. During the third quarter of 2012, the company purchased 2,745,001 shares of its common stock on the open market pursuant to its stock repurchase plan at an average cost of $8.15 per share, for a total of approximately $22.4 million.

All these factors -- the low multiples, the strong growth prospects, the buyback plan and the fact that the stock is in an uptrend -- make DHX stock quite attractive.

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Chart: finviz.com

Entropic Communications, Inc. (NASDAQ:ENTR)

Entropic Communications, Inc., fabless semiconductor company, designs, develops and markets system solutions to enable connected home entertainment in the United States and internationally.

Entropic Communications has no debt at all and it has a very low forward P/E of 13.56; the PEG ratio is also very low at 0.78. The price to free cash flow for the trailing 12 months is very low at 9.93 and the current ratio is very high at 4.59. ENTR records strong growth on all key parameters; the average annual earnings growth for the past five years was very high at 40.42%, the average annual sales growth for the past five years was also very high at 42.14% and the average annual earnings growth estimates for the next five years is also quite high at 18.62%. The stock price is 0.38% above its 20-day simple moving average, 4.90% above its 50-day simple moving average and 2.78% above its 200-day simple moving average. The stock is trading 28.32% below its 52-week high and has 35% upside potential based on the consensus mean target price of $7.15. On October 24, 2012, Entropic Communications reported its 3Q financial results (here), which beat expectations on EPS and on revenue. On that occasion, Patrick Henry, Entropic's president and chief executive officer said:

Entropic delivered record quarterly revenue in Q3 with strength across our entire product portfolio. Momentum continues to build around the connected home market and we saw solid design-win traction during the quarter. We have a great portfolio of products, an expanding addressable market and we're benefitting from one of the most significant trends impacting the industry: the transition to IP video delivery in the home.

All these factors -- The cheap valuation, the strong growth prospects, the good 3Q financial results and the fact that the stock is in an uptrend -- make ENTR stock quite attractive.

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Chart: finviz.com

Kulicke & Soffa Industries Inc. (NASDAQ:KLIC)

Kulicke and Soffa Industries, Inc. designs, manufactures, and sells capital equipment and expendable tools to assemble semiconductor devices, including integrated circuits, discrete devices, light-emitting diodes, and power modules.

See my post (here), where I explain why the KLIC stock seems to be a good investment right now.

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Chart: finviz.com

Source: 5 High-Growth Tech Stocks In Uptrend With Very Low Debt