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Growth comes at a price, but that price doesn't have to be expensive; in fact, the cost of software upgrades is already on the decline. Business Week stated that around 70% of American consumers now are already using the technology that will replace it. Merrill Lynch calls it "a $160 billion tsunami."

Here are four tech stocks that, while more obscure than some of the tech giants we've written about like IBM (IBM), Yahoo (YHOO) and Amazon (AMZN), are setting trends and thus worth investing in.

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Source: Yahoo Finance

Activision Blizzard Inc. (ATVI) is a publisher of online, console, handheld, and mobile interactive entertainment products. Its three segments include Activision Publishing, Blizzard Entertainment and Activision Blizzard Distribution.

  • Revenues. ATVI reported revenues that improved nearly 8% to $2.60 billion, up from $2.41 billion a year ago. The company's digital business was a major contributor to its bottom line in 2012, representing 32% of total revenues. It exceeded analysts' expectations due to strong holiday sales of its popular video games. Analysts had expected the company to report earnings of 72 cents a share on $2.44 billion revenue, according to a consensus estimate from Thomson Reuters.
  • Earnings Guidance. ATVI disclosed its earnings outlook of 80 cents a share in net income and revenues of $4.2 billion in 2013. For the first quarter of 2013, analysts expected earnings per share of 98 cents for 2013 on revenue of $4.6 billion.
  • Operating Margin. ATVI has an operating margin of 29.88%. This is 322.99% lower than that of the Technology sector, and 206.52% lower than that of the industry operating margin.
  • Price-to-book Valuation. The price-to-book ratio of Activision Blizzard is estimated at 1.44X. This is 81.73% lower than that of the Technology sector and 73.96% lower than that of the industry price-to-book. The price-to-book for all stocks is 75.68% higher than ATVI's.

ATVI Operating Margins

Source: Company Reports

Cray Inc. (CRAY) together with its subsidiaries, develops high-performance computing (HPC) systems, known as supercomputers.

  • Revenue Guidance. Management believes that CRAY's revenues will ramp up by 45% in 2013.
  • Margin Guidance. Gross margins are anticipated to be in the mid-30% range. Total operating expenses for 2013 are expected to be in the range of $160 million, which includes $8 million in stock-based compensation and amortization of purchased intangibles.
  • Price-to-earnings Valuation. The company has a P/E ratio of 20.2X, above the average computer hardware industry P/E ratio of 19.9X and above the S&P 500 P/E ratio of 17.7X.
  • Price-to-book Valuation. Cray's price-to-book is estimated at 2.31X. This is 70.69% lower than that of the Technology sector, and 41.07% lower than that of the industry price-to-book. The price-to-book for all stocks is 60.98% higher than Cray's.
  • Analysts' Price Target. Analysts at Needham & Company raised their target price on company shares from $22.00 to $24.00 with a "Buy" rating.

CRAY Cumulative Historical Stock Returns

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Source: SEC Filing

Cirrus Logic (CRUS), founded in 1984, develops high-precision integrated circuits for a variety of audio and energy-related applications.

  • Revenues. Cirrus Logic saw sales decline due to sharp Apple IP5 production cuts. Audio revenue was down 35% quarter-on-quarter as the IP5 transitions (AAPL now only accounts 85% of sales from the previous 91%). Energy revenue grew 5% quarter-on-quarter. An inventory charge of $23.3 million resulted in an increase by 1,000 basis points quarter-on-quarter and a decline in gross margin to 40.4%. EPS is $0.59 a share, a penny below the consensus analyst estimate.
  • Revenue Guidance. Revenue guidance is within $150 to $170M, in line with the analyst consensus estimate of $159 million. iPhone shipments will reach 20 million by the fourth quarter of 2013.
  • Margin Guidance. Gross margin is expected to retreat to the 50% to 52% range with better-than-expected operating expenses in the $45 million to $49 million range (versus the prior estimate of $48M), yielding EPS of $0.43 to $0.58, slightly above the analyst consensus estimate of $0.48.
  • Strategic Direction. The company is taking the right approach in diversifying by developing a catalogue portfolio of products that other mobile phone manufacturers can leverage. Although these plans will not completely diversify the company immediately, it is an important first step in the right direction. It also indicates that manufacturers are valuing the technology brought by Cirrus to improve the voice experience on the phone.
  • Price-to-Book Valuation. Price-to-book ratio of Cirrus Logic is estimated 2.49X. This is 68.4% lower than that of the Technology sector, and 56.6% higher than that of the industry price-to-book. The price-to-book for all stocks is 57.94% higher than the firm.

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Source: Company Reports

Ebix Inc. (EBIX), with headquarters in Atlanta, GA, is a software and e-commerce solution supplier for the insurance industry with close to 80% of its revenue recurring.

  • Revenue Growth. Ebix Inc. has been growing revenues at about 30% for the past three years and has annually translated about 40% of its revenue into operating cash flow.
  • Balance Sheet. The company has a low tangible book value relative to market cap, meaning the balance sheet has a lot of goodwill/intangibles. Total debt has increased from about $52 million to $80 million over this time, adding another $30 million in cash.
  • Cashflows. About $172 million in operating cash flow has been generated since 2009, with about $6 returned to shareholders through dividends. The balance was used to make acquisitions and to repurchase shares.
  • Operating Margin. Ebix has operating margin of 37.79%. This is 382.01% lower than that of the Technology sector, and 380.97% lower than the industry's operating margin.
  • Price-to-book Valuation. Price-to-book ratio of Ebix is approximately 1.94X. This is 75.38% lower than that of the Technology sector, and 88.24% lower than that of industry price-to-book. The price-to-book for all stocks is 67.23% higher than the company's.

EBIX Profit Margins & Revenues

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Source: Company Reports

Disclaimer: Black Coral Research, Inc. is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

Source: 4 Obscure, Undervalued Tech Stocks With Strong Fundamentals