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Wednesday, July 27, 2011

7 Profitable Tech Stocks with 50-DMA turning Bullish

Lately tech has been coming out of the doldrums. That's good news for tech investors and the market as a whole since tech is often the sector that leads the market out of a downturn.

Here is a list of seven tech stocks that are both profitable and whose 50-day exponential moving average (EMA) is just turning bullish. Note that this is the result of Tuesday's action (7/26).

Symbol Name Industry PE Ratio Price to Sales PEG Ratio Cash Flow Yield Enterprise Value to EBITDA
BRCM Broadcom Corporation Semiconductors 17.61 2.69 0.81 6.08% 15.33
ININ Interactive Intelligence Group, Inc. Computer Software: Prepackaged Software 43.36 3.77 1.37 2.79% 19.08
KFRC Kforce, Inc. Professional Services 26.3 0.57 0.52 (3.57%) 11.17
SFN SFN Group, Inc Professional Services 36.88 0.34 1.04 2.72% 10.16
SIMO Silicon Motion Technology Corporation Semiconductors 95.08 2.15 0.66 N/A 12.03
SSYS Stratasys, Inc. Computer peripheral equipment 56.6 6.38 1.8 -0.11% 25.46
YNDX Yandex N.V. Computer Software: Programming, Data Processing 76.17 23.17 1.83 4.99% 45.94

As someone who looks for some indication of value, this list seems to be tilted toward expensive, overvalued stocks. As they say, however, growth doesn't come cheap. Though PEs range from moderate to quite high for these stocks, the PEG ratios for most of them are fairly reasonable. One can argue whether PEG is ever a reliable or useful number as an indicator of growth, since it is based on analyst predictions, but that is a topic for another post.

It is best, therefore, to look at several valuation numbers in combination. For example, Broadcom certainly doesn't look cheap but on the whole it is not especially over-priced for a tech sector growth stock if the company can deliver even partially on the expectations set by the rather low PEG of 0.81. The company just reported earnings that beat expectations with improved margins and stronger cash flow. More importantly, management indicates that they expect double-digit growth in sales of chips for smartphones and tablet computers in the current quarter as more of its communications technology is used in popular consumer electronics, including Apple's iPhones and iPads, Android smartphones and the Nintendo Wii. The company is hedging its bets by focusing not only on high-end smartphones but also on lower-end Android phones, many of which are expected to be selling in China soon, still a big market for new technology. Further addressing the China market, the company now has chips tailored to Chinese networking standards that are making their appearance in broadband applications.

While Broadcom seems to be the star of this list, it is notable that there seems to be a small trend toward tech outsourcing here. Kforce and SFN Group (also known as Spherion) are both involved in supplying tech workers on a temp or contract basis. These businesses are both benefiting from employers reluctance to hire as the jobless recovery drags on.

Another interesting candidate here is Yandex. Missed getting in early on Google or Bidu? Though Yahoo says the company is based in the Netherlands, Yandex operates a Russian Internet search site from their headquarters in Moscow and they just went public in the U.S. in May of this year. The site is much more than just a search engine and offers a number of other Internet-based services and products including an online payment system analogous to PayPal as well as sites that are similar to LinkedIn and Flickr. Yandex is the most popular site in Russia and has a search market share in that country that is three times greater than Google's.

These stocks may not be for the faint of heart, especially as the market sags under the weight of the debt ceiling debate, but there are definitely a few interesting watch list candidates here.

Disclosure:  no positions in any stocks mentioned in this post

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