Aug 27, 2010 10:04 AM PDT
Technology stocks continue to take a beating, threatening to add to the previous session's losses as investors awaited Oracle Corp.'s fourth-quarter earnings report.
The tech-heavy Nasdaq Composite Index fell more than 60 points as part of a broad market selloff.
As far as I'm concerned, you better have a well thought-out plan if you still want to invest in tech right now. Just stay clear of large caps for the time being. Another round of poor earnings and forecasts could trigger a round of profit taking.
I know these companies have been around forever, and they'll be around for a long time (bar an unforeseen scandal). But, I believe the companies that think outside the PC box will fare better over the short-term and especially as the economy slithers from recession.
These large caps are the squeaky wheels that get the grease, but I'd be paying attention to some lesser known, on the cusp, innovative companies. Don't take my word for it. History backs me 100%.
In all but one year, from 1926 to 2006, small-company stocks outperformed the largest stocks, according to Ibbotson Associates. In fact, after the 15 bear markets since 1932, small-caps outperformed large-caps 12 times, according to research from The Leuthold Group, a Minneapolis-based firm.
For example, the 12 months following the 2000-2002 bear market, small-cap performance nearly doubled that of large-caps, 46% vs. 24%. Another illustration of this wide gap came a year following the 1982 crash when small-caps surged 96% compared to 59% for their large-cap counterparts.
That's enough about history. Let's turn to how you can profit in the here and now. Below are a few small-cap companies that occupy unique spaces in the technology sector.
First, on my list is United Online Inc. (NASDAQ: UNTD). This company provides Internet services in U.S., India and Germany. Owners of NetZero, Juno and Classmates.com, it also pays a juicy 6.40% dividend. Since hitting a five-year low on March 9, shares are up more than 50%.
So, here's an income-producing global tech play. I like the sound of that.
Another creative small-cap tech stock is Allscripts (NASDAQ: MDRX). This stock is up about 40% year-to-date and more than 75% since the lows of March 9.
Allscripts provides e-prescribing technologies-one of the hottest arenas out there today. This is basically a doctor's ability to electronically send an accurate, error-free and understandable prescription directly to a pharmacy.
The medical/technology combination is very appealing, especially when there's pending legislation to provide financial incentives to promote the adoption of e-prescribing.
Finally, I like GeoEye (NASDAQ: GEOY), a leading provider of global space-based and aerial imagery and geospatial information. GeoEye now has the best satellite imagery available to buy. From a profitable contract with the US Government and the ability to sell imagery to entities from oil companies to insurance companies to Google, this company is set to grow revenue and the bottom line. Add to this a lack of competition and high costs to compete, GeoEye is a relatively low risk growth company.
The potential uses for GeoEye's imagery and imagery services are endless. Beyond basic intelligence gathering for the U.S. Govt, their product is used by foreign governments and commercial businesses. These uses include vessel tracking, infrastructure planning, environmental, agricultural, space exploration, humanitarian, oil and gas drilling, mining, mapping and weather monitoring.
The business is very capital intensive and subject to very strict NSA requirements. But the likelihood of the U.S. Govt (or other governments) to internalize this information gathering is probably minimal.
Small is definitely the way to go.
