It will be an interesting week in the market after last week's late rally on comments by various players in Europe that they will be bold enough this time to ward off disaster. I don't think this rally is sustainable as Europe is likely to remain a mess for the foreseeable future regardless of what they do now. The current tepid domestic job and economic growth as well as an apparent slowdown in corporate profits also do not bode well for a significant leg up from here.
That being said, I think there will be many opportunities over the summer to "buy on the dips". I particularly like some small cap tech stocks that have been held back by the overall negative sentiment around IT spending. Right now I have a couple of small cap tech names on my radar to pick up on the next significant selloff. These stocks are cheap, have cash rich balance sheets, good growth prospects and can be had for around $6 a share.
Actuate Corporation (BIRT) provides software solutions and consulting services to corporate and government customers worldwide. It offers ActuateOne, which enables corporations and packaged application software vendors to develop and deploy BIRT-based custom business intelligence and information applications that deliver interactive content to support cloud, on premises, or mobile deployments.
Four reasons BIRT provides solid value at $6 a share:
- The company has over $65mm in net cash on its balance sheet (over 20% of its market capitalization).
- The stock is showing good revenue growth ahead of it. Analysts expect 7% to 8% sales increases in 2012 and 2013 and the stock has a five year projected PEG of under 1 (.67).
- Three of the four analysts that cover the stock have a $9 a share price target on the stock, the other is at $8 a share.
- The stock is cheap at under 11 times forward earnings (Around 8 times if one accounts for cash), a discount to its five year average (12.8).
Four reasons ELX is a solid pick at $6 a share:
- Analysts consistently underestimate the company's earnings power. Emulex has easily beat earnings estimates the last four quarters. The average beat over consensus during that time span has been north of 26%.
- The company has over $200mm in net cash on its balance sheet (over 35% of its market capitalization). The stock has a five year projected PEG of under 1 (.56) as well.
- The twelve analysts that cover the stock have a median price target of $9 a share on the stock.
- ELX is going for just after 7 times forward earnings, a deep discount to its five year average (16.8). The stock also has good technical support in this price range (See Chart).