Several analysts including Jim Cramer have spent months screaming “Sell Tech!!!” While I respect their success and opinions this is one area where I differ. Technology is a sector that is hit or miss. Companies are constantly trying to reinvent themselves and find that next big product. This article is not focused on Tech stocks that may have found the next big thing. It is focused around tech stocks that have solid fundamentals and strong signs of immediate and long-term growth.
Keynote Systems, Inc. (KEYN) – Is a provider of Internet and mobile cloud monitoring solutions. During this era of the “cloud” a company such as KEYN can easily prosper. Through research the company provides solutions and gives guidance to other companies on improving their online experience. Keynote allows companies to know precisely how their Web sites and applications perform on browsers, networks, and mobile devices. The stock has seen gains of 150% over the past year trading near its 52 week high. The company has a market cap of over $370 million. It has continued to increase guidance quarter over quarter and increase revenue, profit margins, and net income along with paying a solid dividend. Keynote Systems provides the research and solutions that companies need to be competitive in a market full of online companies.
Speadtrum Communications (SPRD) – Is a Chinese company that designs, develops and markets baseband processor, radio frequency (RF) transceiver and turnkey solutions for the wireless communications and mobile television market. The company has seen gains of 78% in one year due to better operations. Revenue and Net Income have increased the last five quarters and Total Assets have increased quarter over quarter. In 2010 the company saw revenue and assets 300% greater than the year before. This year the company has shown signs of continuing the growth, increasing revenue guidance for both the 1st and 2nd quarter. Investors have bought into the company’s growth and with a Price-to-Earnings ratio of only 9.2 there is still much room for immediate growth.
Magic Software Enterprises (MGIC) – The company develops, markets, sells and supports an application platform and business and process integration solutions. MGIC experienced gains of 152% in 9 months as a result of various contracts, new assets, and improved earnings. Revenue and total assets have continued to improve quarter over quarter with 2010 posting more profit with higher assets than any year over a period over five years. This increase in profit has continued to increase over the first quarter of 2011, with the company reporting a 29% increase in revenue. The stock has since seen a downtrend after announcing record revenue, launching new applications, and securing contracts. If anything the stock should have seen even more gains yet the industry weakness caused the stock to decline.
All three companies have the potential to grow and send their stock to new highs. Keynote Systems shows incredible growth but has a current EPS of only .48 and while I am sure the EPS will grow the P/E still worries me at 46.80. Speadtrum Communications has all the makings of a great company. The only thing that worries me with this investment is the fact it is a Chinese company. I almost feel bad saying that but because of companies such as Longtop Financial Technologies (LFT
), which reported great earnings and appeared to be legit, I question Chinese companies. The chance of SPRD getting halted for months and being a scam is very rare; there are thousands of great companies in China. Still, the stock I would pick to invest in now would be Magic Software Enterprises. The P/E ratio of 19 is in the area I like, it has invested profits into expansion and assets, and reported breakout revenue during 2010 with 2011 starting even better.
I don’t think you can miss with any of these companies. Each company is unique in its operations while sharing one similar trait - which is growth. While I like MGIC the best of the three, each stock has strengths. SPRD has the largest potential for growth because of its location and current position, and KEYN pays quarterly dividends and has displayed constant growth with no long-term pullbacks. The technology sector is bullish as Google (GOOG) released great earnings and Apple (AAPL) is trading at all time highs. Many other tech companies are trading lower than their worth because of the pullback. Spreadtrum Communications, Keynote Systems, and Magic Software are only three companies I like in a sector that is going to see new highs in the coming months, now is the time to take advantage of these low prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.