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"Next Wave of Tech Stocks"

[written November 23, 2003]

This is a follow-up to the last stock market piece that I wrote.

While I'm bearish in the long-term (5-10 years), it's hard to fight the trend right now. Economic numbers are favorable towards the bulls, as are earnings results. Many stocks have just kept moving upwards, with little correction. The bulls have it right now.

The bullishness means that certain stocks are being bid up a lot. My problem is that they've all been bid up too much and are too risky for me to get into them right now.

What I tend to look for for new stocks is low-level consumer growth. The number of decent competitors is a factor too. I don't like companies with low growth, like many of the Dow components. But if I see a product selling like hotcakes among sysadmins or at electronics stores, or if that company is one of the few companies competing in a brand new arena, like, for example, cellular markets in Africa, then I'm going to be interested. I believe very much in Warren Buffett's and other long-term investors' maxim that you have to just get a feel for what people want by watching their consumer trends and staying in touch with the community. That is, invest in what you use. That's how you pick winners, especially if you're very open-minded and share similar concerns and desires for product satisfaction with other consumers.

What sectors are good to be in right now? Wi-Fi is extremely hot, for example. Other areas are GPS, cellular, and semiconductors. All these technologies are beginning to come together into affordable and irreplaceable products for businesses and individuals alike. You're beginning to see things like smartphones (a PDA AND a phone) with geosynchronous positional systems, Bluetooth, MP3, full web access, and more. For many people, these products would completely replace desktops, given a few more additions like wireless printing and larger, cheaper memory.

That said, the tech that was formerly doing well on desktop computers has been transferred over to said smaller devices like Palms, PocketPCs, etc. Tech like CPU chips (AMD vs. Intel vs. Mac). All those memory cards taking the place of RAM chips on desktops. Etc.

Here's a good example. One of my new favorite stocks is Sandisk, SNDK. This stock's already run up a lot. Sandisk pretty much rules the SD memory card market. If you need to buy more memory for your MP3 player or your digital camera or your PDA, chances are you'll be buying a SNDK card. And they still cost a lot! SNDK is cashing in on memory like Micron used to when computer specs were ramping up a few years ago. Eventually, there'll probably be a lot of competition in this market, like there was for Micron, but right now, it's high living over at SNDK. I think handheld devices are only going to become more in demand, so SNDK's future is extremely bright. But would I pay for it here? No.

Sandisk SNDK chart

Garmin (GRMN) was one of my favorite GPS stocks. It's had a great run recently, along with LEIX and COBR (its competitors). I think Garmin's the best of the bunch, because it receives the best reviews and seems to be more available than Magellans and Cobras at retailers. Magellan GPS receivers get poorer reviews than Garmin devices, which seem to satisfy the customers well. I think GRMN could go much higher, and it's consolidating above its last period of all-time highs (at the 50 level).

Garmin GRMN chart

The applications for GPS are boundless. It's already taken up a recreational use for geeks, in the form of geocaching, where people take their GPS receivers around and try to locate points that other GPS users have already been and left something for them. Once they find the point, they take something out, and leave something for the next geocacher. It's akin to what climbers of Mt. Everest do.

GPS navigation systems in cars are becoming more standard, and soon won't be just for high-end automobiles. GPS add-ons are available for PDAs and smartphones now. These interact with mapping software from databases like Mapopolis or National Geographic's.

There's a whole new field related to GPS called GIS, Geographical Information Systems. It's involved with seeing the world in different layers of information, mapping population densities over terrain maps over industrial production densities over road systems, and so on. This only adds to the efficiency of large businesses in their expansion. The biggest company in this field seems to be ESRI, which is not public, but seems to be connected heavily with Microsoft.

Another area I like is in companies that are trying to build cellular networks in third world countries. The benefit of cellular in these countries is that it costs too much to build a hardline infrastructure, plus there's too much risk. But if you set up cellular networks, then it requires a lot fewer access towers and maintenance. Plus it ramps up quickly, servicing a lot of people with ease since it's done wirelessly. Millicom is one company that's trying to do this. I haven't researched them much, but even if they were to become the sole provider of cellular in just a couple countries, it'd be worth it to invest in. Imagine if you bought MICC at the beginning of this year!

Millicom MICC chart

Alternative energy automobiles are beginning to show up with more frequency now. And the cars are extremely fuel-efficient without looking too geeky now, too. Given that most of the car companies' stocks have taken a bashing in the last ten years, I'd give it a thought to invest in those companies again. Once the car companies start rolling out these cars, it'll be worth it for everyone to buy new cars and a new bull market for car companies will begin again. It's also worth it to find companies that are working on alternative energies, now that the technology and ability to roll it out to end-users is becoming more affordable. Ivanhoe is one of these companies. I haven't researched it much so it could be a fraud -- but it came up in a stock scan.

Ivanhoe IVAN chart

In the last report, I mentioned Indian tech companies like Infosys and Witpro. They've been getting a lot of press recently for how American companies are looking to use them for tech support during off-hours in the west. Well, these companies are booming.

Infosys INFY chart
Witpro WIT chart

I just bought some Nike. Not only is their stock trying to break out to all-time highs, but they're also expanding to an entire fashion line instead of just active-wear. I think Nike has its fingers on the pulse of what's cool in fashion not only in the US, but in Europe also (although there's more competition in Europe). Going into fashionwear seems exactly what Nike should do. Plus they always get the best athletes for their fashionlines.

Nike NKE chart

To finish off, here are some tech companies I'm really bearish on.

Macromedia sells a bunch of software that was useful at first, but later versions and newer products don't really add much spunk to projects and web design. They reported disappointing earnings and were spanked for it. As a result, it now has a bearish candle on its chart. They're a marginal company at best, unless someone takes pity on them and buys them out.

Macromedia MACR chart

Macromedia's sister, Adobe, is encountering similar growing pains. I think while it has more diverse products, none of them really make money except for a handful like PageMaker, Illustrator, and PhotoShop. Those products are too finely tuned now for people to really need to upgrade to them. Especially at the prices ADBE wants. ADBE hasn't felt the earnings slump yet.

Adobe ADBE chart

Checkpoint is an Israeli company that makes firewalls and security protection for networks. I don't know why you'd need to buy their product when there are others, many of them free, available.

CheckPoint CHKP chart

Here's the numbers from my Yahoo! account. I'm short on some traditionals like Boeing and International Paper because their P/E's are insane. I've thought Phillip Morris (Altria) has been undervalued for ages now. Semiconductor shorts are kicking my ass -- apparently the semi's want to keep going up. Microsoft refuses to bounce strongly off its long-term trendline -- even so, it's my favorite stock, still.

SymbolPriceShrsPaid% GainP/E
ADBE39.36-7,00041.963572+6.20%41.86
BA38.86-1,50035.43-9.68%185.05
CHKP16.68-1,00043.00+61.21%17.63
GRMN52.2413,00044.07+18.54%33.49
HD35.66-4,50035.914445+0.71%20.26
INFY78.093,50065.78+18.71%45.53
IP37.10-1,50040.46+8.30%132.50
JNPR17.42-1,00021.25+18.02%193.33
LLTC41.17-7,50040.989333-0.44%52.17
MACR20.22-3,50027.085714+25.35%40.54
MCD24.97-2,00023.43-6.57%31.11
MERQ44.60-3,00037.803333-17.98%87.46
MO50.091,50040.46+23.80%11.48
MSFT25.118,00027.95125-10.17%25.92
NKE63.312,00062.57+1.18%21.53
NVDA19.76-5,00039.10+49.46%33.36
NVLS42.54-4,00038.8675-9.45%N/A
SNDK76.541,00077.95-1.81%43.69
SNE33.882,50036.36-6.82%72.24
TWX15.554,00020.97125-25.85%N/A
VRTS35.08-5,00035.473+1.11%125.28
WIT36.413,50028.475714+27.86%50.36

23 symbols Total(USD): +6.74%


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