Money Morning Article of the Week
by Michael A. Robinson, Defense and Technology Specialist, Money Morning
[Editor’s Note: Fresh off last week’s immensely successful investor webinar, tech expert Michael A. Robinson has put together his tech stock outlook for next year. As Michael notes, it’s going to be all about the buzz in 2013.]
The best way to score tech stock gains in 2013 is simple: tap into the areas where there is “constant buzz.”
But before we get to the three areas that are the most buzz-worthy, let’s start by clearing up one big myth. There really is no such thing as one tech industry.
High-tech now sweeps throughout the entire economy. We’re talking everything from robot welders, to laser surgery, to hum-drum database management.
So, even if the economy remains flat or declines, there will still be buzz-driven tech stock winners, companies involved in fields that are so vital that customers simply must have their products.
That’s why I tell investors to look for huge global trends that will continue no matter what happens with the fiscal cliff or the Eurozone debt crisis.
Ditto for the expected battles over Obamacare this year. Two years after its passage, we still don’t know exactly how many states will set up the exchanges needed to put the law into practice.
Either way, it doesn’t really matter…
There’s so much going on in high tech that some specific tech stocks are bound to yield big gains in 2013.
I’ve narrowed it all down to three vital areas that should power through next year– no matter what the economy or the politicians throw at them.
It starts with the biggest of them all, the mobile wave…
2013 Tech Stock Forecast: Ride the Mobile Wave
Mobile tech dominated developments in the market this year and that trend will gain steam throughout 2013.
Indeed, the mobile wave is moving more quickly than the advent of the personal computer in the 1980s and the rollout of the Web in the 1990s combined.
That’s because mobile devices like smart phones and tablets provide a huge amount of computing power for very little money.
As I like to remind people, your smart phone is a faster and better computing system than NASA had for its Apollo moon shots — and it’s more than 1,000 times cheaper.
For less than a flight from LA to New York, you can have the whole world in the palm of your hands.
What makes this wave so strong is the sweet spot — low-cost devices, high-speed wireless Internet access and a huge build-out around the world of cell towers that offer fast data rates.
Add it all up and you have a huge global trend that will flatten anything in its path.
Just look at what happened to Hewlett-Packard (NYSE:HPQ) this year. Light on mobile tech compared to its peers, the stock is off 55% so far in 2012.
Though it faces growing competition, Apple Inc. (Nasdaq:AAPL) will dominate the enterprise class for tablet computers with its 10-inch iPad. It sets the standard for professional use.
And don’t forget the importance of the iPhone 5. Indeed, I penned a column for Money Morning back on Aug. 22 that mentioned six ways to play this hot mobile device, including some small caps that you can read about by clicking here.
Also, keep an eye on Visa Inc. (NYSE:V). Known mostly as a credit-card firm, it is moving heavily into mobile payments. It trades at about $148 with a forward P/E of 17.5 and has very high profit margins.
Ebay Inc. (Nasdaq:EBAY) is close on its heels. Its Paypal unit is aggressively courting mobile payments.
Betting on Big Data And Cloud Computing
Most analysts divide big data and cloud computing into two separate categories. But I see these as two sides of the same computer coin.
Here’s the thing. The minute a firm decides to move data to the cloud it realizes it is sitting on a gold mine. So it invests in big data to cut costs and find new sources of revenue.
And the reverse holds true as well. Firms that want to mine their vast treasures of info on clients, suppliers, and industry players realize they need to move all that information to the cloud. It’s a whole lot cheaper than upgrading a computer network or building a new one from scratch.
Also, both fields derive much of their growth from the Internet. The advent of the Web has unleashed a tidal wave of new data, voice, video, Web-based applications and the like.
It’s just too much information for humans to handle.
So, big data firms provide algorithms and other ways to convert boring details into something much more exciting — cash. Stocks to watch in these two areas include:
- EMC Corp. (NYSE:EMC) is a data storage firm that also offers cloud-based infrastructure services. Trading at about $25, the big-cap firm has low price ratios and solid profit margins.
- Akamai Technologies Inc. (Nasdaq:AKAM) is a U.K.-based firm that is a straight-up play on cloud computing. Trading at about $36 a share, it has $465 million in cash on hand and no debt.
- International Business Machines Corp. (NYSE:IBM) pretty much defines big data, but also is moving heavily into the cloud. With a market cap of $216.5 billion it trades at less than 14 times earnings.
Cyber Security Could Become Federal Law
This field faces a big political question: Will Washington finally pass a cyber security law mandating new measures for the private sector?
Despite what looks like broad bi-partisan appeal, Congress debated but did not pass a cyber security bill earlier this year. This is ironic considering how much Washington has cranked up new business mandates in the last decade.
CEOs I talk with say they expect a solid run at passing some type of cyber security bill in the second half of this year.
Clearly at this point, no one knows what might pass in its final form. But even if no law comes out this year, expect this segment to do well for one big reason — constant buzz.
Cyber breaches are a daily fact of life in a Web-oriented world. Several make big news each year, prompting more firms to spend money protecting their computer assets. Here are three firms that specialize in this area:
- Palo Alto Networks (NYSE:PANW) trades at about $55.00 but is very expensive on a ratio basis, trading at a forward P/E of 133.
- Check Point Software Technologies Ltd. (Nasdaq:CHKP) is very well known in this space. It trades at about $45.00 with a forward P/E of 13 and profit margins that are off the charts.
- Fortinet Inc. (Nasdaq: FTNT ) trades at nearly $20 a share with a forward P/E of 32.50 and solid profit margins. It throws off a lot of cash and has no debt on its books.
Let me close by noting that even if the economy softens next year, the three sectors I’ve outlined should do well.
Each represents an area that is benefitting from radical change that can’t be stopped.
That’s why I think the market will love these tech stocks in 2013.
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