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Daily
Stock Tips Free Report #4:
Tech Stocks: How to Pick Tomorrow's Big Winners
The gigantic stock market rise and subsequent collapse of the 1990s was
largely a phenomenon of technology stocks. Analysts who should have known
better proclaimed that a "new economy" driven by rapidly advancing
technology outdated old measures of value like cash flow, profitability,
management experience, and financial statistics. In fact the height of the
bubble, jokes were made about the dangers of buying stocks that actually
made money! Why they were prime examples of the "old economy" and should
be avoided.
The subsequent collapse of the tech sector, represented by the NASDAQ
composite was of historic proportions. Many of those stocks which raised
hundreds of millions of dollars in their IPOs (Initial Public Offerings)
by merely slapping a "dot com" after their name, dropped catastrophically.
Most investors lost not only their profits but their initial investments
and suffered staggering losses.
That all makes it very difficult to wade into those same high technology
waters again. But logic should tell you, that the future will be defined
by technology. Paper, concrete, and food companies will rise and fall, but
none of them will be on the cutting edge of what determines our economic
future. The cutting edge is going to be high technology. Refusal to accept
that reality will be costly, especially for investors who are not going to
be satisfied with making 10% to 12% per year, the average stock market
return.
But consider these facts: the surviving tech companies are slim, trim, and
mean. The fat has necessarily been trimmed from their operations. Those
who refused to make the tough decisions and pull in profligate spending
were trounced over the past 5 years. Only those companies who were able to
conserve their capital are now able to make the necessary capital
investments that will ensure above average profits in the years to come.
In your search for the leaders of the next technology bull market watch
these factors:
1) Revenues. Zero in on those companies able to grow revenues 20% or more
quarter after quarter.
2) Earnings. Revenues are only part of the picture. Controlling operating
expenses leads to earnings growth. Focus on companies that are capable of
showing annual earnings growth of 50% or more.
3) Watch debt levels. Well managed technology companies have harbored
their capital and are capable of paying off debt. Rising interest rates
are an inevitable part of a growing economy. A company overburdened with
debt will see their costs spiral steadily higher over the next few years.
We prefer to buy companies with no long term debt.
4) Focus on the right companies. In the 1990s anything with a high tech
sounding name was sufficient to draw buyers. But in the current
environment, IT managers for major companies are being much more careful
about the expenditure of funds. Ask yourself these questions: does the
company's products help corporations 1) reduce costs, 2) improve
productivity, and 3) improve profits.
5) Unlike the 1990s, the bottom line will be the key in any corporate
buying decisions. One of the key factors to the dynamic economy of the
past 3 quarters has been the historically high gains in productivity. 100
workers today are producing what 110 workers produced only 6 years ago.
Technological advances that boost productivity will be in the forefront of
the big gainers in the years ahead.
The following areas are ones that our research suggest offer great
opportunities.
Internet Telephony. No serious business person is without his or her cell
phone. As technology advances, the combination of cell phones and computer
access means that executives are no longer tied to their desks. Right now
the ability to access full computer services is for the "geeks" only. But
when it breaks through for the average person, there will be explosive
growth here.
Every executive wants to be able to have full access to their computer
data bases without being tied to a desk. Imagine the ability to access
computer information via cell phone in a client's office. No more "I'll
have to get back to you with that information."
Take a look at Avaya (AV) and Polycom (PLCM). Tech giant and bellwhether
company Cisco (CSCO) has just moved into this area in big way.
Closely tied to this is the rapid rise of the wireless sector. The average
home consumer is now able to easily set up his or her computer with
wireless access among all computers in your home. Wireless access in the
home enables you to watch TV with a laptop computer on your lap,
researching news and comments in real time.
Right now wireless node points are relatively scarce. But within the next
couple years companies will be expanding wireless access points around the
globe so that you will be able to access the Internet and/or your home or
office computer virtually anywhere in the country without cumbersome
modems and wires. Sit down to lunch in Los Angeles, and access the latest
market news on your handheld or laptop computer while you are waiting for
your entrée to be delivered.
Keeping up with billing and accounting on wireless access networks will
require a whole new approach. Take a look at Amdocs (DOX).
With such easy wireless access comes problems with security. Malicious
viruses, spyware, stifling spam are all concomitant with easier more
widespread computer access. Companies that provide security will never go
out of style. Take a look at Symantec (SYMC), Trend Micro (TMIC), and
Aladdin Knowledge (ALDN) for starters.
There are many other areas. Just put on your thinking cap. What needs do
you see for your business or industry. What companies are moving to
address those needs. Peter Lynch, the former manager of the Magellan Fund,
is one of the most successful investors of all time. He made the case that
the best investments for most people were those that excited them either
in their personal or business lives. What companies are providing services
that you want, need, or cannot do without? They are the potential big
winners of tomorrow.
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