What are you going to snap up for the technology portion of your portfolio next year? If you’re the betting kind you could go for the premier growth stocks, ones that analysts are expecting to race ahead in revenue and earnings growth, hopefully taking their share price along for the ride. But if you have a little bit of Buffett in you and like your margin of safety, there are still some appealing stocks priced short of perfection even after the tech-heavy Nasdaq Composite Index rose 36% in 2013.
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Forbes stats editor Scott DeCarlo ran a screen of all U.S.-traded tech stocks with at least $500 million in market value to uncover worthwhile growth and value stocks. Our cutoff for growth stocks were those with at least 20% estimated sales and earnings growth in 2014. Names that made this screen include Facebook, LinkedIn, YY (a Chinese messaging service), 3D Systems (a manufacturer of 3D printers), and Universal Display (which makes crisp OLED screens). But they’re also pricey; most of them are trading at least 10 to 20 times estimated 2014 sales and at least 7 times book value. Buyers of LinkedIn really have to peer through their fingers when pressing the buy button. It’s trading at more than 700 times trailing twelve-month earnings.
A more palatable choice may be Synchronoss Technologies, which sells handset backup and activation services to mobile operators. Sales and earnings are expected to grow at a rate of just north of 20% and it’s only selling at 19 times its next twelve month earnings. The stock’s trading at $30 and Wall Street analysts (take their advice with a grain of salt) have put a mean price target on it of 51. Raymond James on December 12 upgraded the shares to strong buy from outperform, reiterating its price target of 40, giving you a potential 30% jump from here. The chartists like it, too, suggesting on December 10 that it looks oversold.
On the value stock side, our screen also looked at stocks with at least 10% estimated earnings growth for 2014 as well as long-term earnings growth of 10%, but with valuations that are far more tolerable. We used the basic measure of PEG, or price-earnings over growth rate, and screened for only those stocks with a PEG less than 1, or growth on the cheap. Here is the list sorted by lowest to highest PEG ratio for the next 12 months.
- Arris Enterprises (PEG 0.26)
- SanDisk (0.54)
- Lam Research (0.55)
- Tangoe (0.64)
- Web.com Group (0.74)
- IPG Photonics (0.77)
- PDF Solutions (0.89)
- Virtusa Corp. (0.92)
- Ubiquiti Networks (0.95)
- Neustar, Inc. (0.96)
- CalAmp (0.98)
The standout here is Arris Group, which makes broadband modems and cable set-top boxes (it bought the Motorola set-top box division from Google earlier this year) and is enjoying a strong up-cycle with cable and telcos upgrading their equipment to faster and more efficient IP networks. It’s also gaining share against Cisco in the set-top business. The consensus price target for the stock have been moving up strongly in the past two months to around $30, which would be a 27% jump from its latest price. Shares are up quite a bit in the last few weeks but are still trading below their five-year average p/e of 25.
The second stock on the value list, SanDisk, has already seen its shares touch an 8-year high in October, but it may still have room to run. The maker of flash memory has deals with many handset manufacturers in China and will be a key beneficiary when Apple rolls out its next iPhone some time in the middle of 2014.
You can download the full spreadsheet here and play with the numbers yourself.
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