3 tech stocks to ride out the storm
These non-hyped companies deliver on growth and value.
By Karen Riccio
The government sure knows what buttons to push to send the VIX, a measure of stock market volatility, into a tizzy and investors heading for the nearest exit signs.
It happened between April and June when the Federal Reserve toyed with pulling the plug on the bond-buying band-aid keeping the economy from bleeding. The Dow Jones industrials ($INDU) suffered at least three 200-plus point plunges during that period, while the Standard & Poor's 500 Index ($INX) shed 2.2%.
Now, the VIX has risen even higher, thanks to a government shutdown that has the nation on pins and needles while worst-case scenarios make daily headlines. No index or sector has been spared, with nearly 3% losses across the board over the past five trading days.
I don’t blame investors. If I were sitting in a couple fat stocks that racked up fat gains three-quarters of the way through the year, I’d take profits off the table too. Seeking refuge on the sidelines as the fourth-quarter storm blows through sounds very soothing. No one knows what to expect on Capitol Hill or Wall Street from one day to the next. We can’t control either, but we can seek out stocks capable of shaking off potential nervous breakdowns and performing stealthily through the rest of 2013.
Here is a trio of non-hyped technology stocks well-positioned to hold up under adversity, deliver growth and value, and several pay dividends to boot.
EMC Corp. (EMC)
Although government contracts don’t sound appealing right now, once Uncle Sam gets back on track, the Department of Homeland Security is looking to secure Big Data vendors to provide billions and billions of dollars in products and services over many years.
EMC will definitely be in the running. In late 2012, the $50 billion company formed a separate organization called Pivotal Initiative headed up by VMware’s former CEO Paul Maritz. It combines VMware’s data center software and EMC’s big data technology. It is expected to bring in revenue of about $300 million in 2013, with revenue expected to grow to over $1 billion by 2017. EMC actually owns 33% of VMware.
General Electric (GE) also invested $105 million to buy a 10% stake in Pivotal Initiative. Best of all, EMC’s products are compatible with many different platforms, including IBM (IBM) and Oracle (ORCL).
EMC brings value to the table -- just what a portfolio needs to weather storms. It trades at 14.5 times this year’s earnings, with a clean balance sheet of $11.15 billion in cash. It recently started paying a small dividend of 1.6%, but that’s expected to increase steadily.
The company reported a 5.7% increase in revenue and 7.8% gain in net income to $701 million for the second fiscal quarter ended June 30. Up 3.6% in the third quarter and flat year-to-date, EMC has plenty of room to grow.
CA Technologies (CA)
Most impressive about CA Technologies is that its net income for the first fiscal quarter ended June 30 rose 42% to $335 million. Perhaps Michael Gregoire taking over as CEO and cutting costs had something to do with the growth.
Prior to that announcement, shares of CA were up 30% year-to-date so it appears this may be the beginning of a second chapter of steady gains.
CA is involved in a rapidly growing and necessary part of IT. It’s called Data Center Infrastructure Management or DCIM. Rather than go into eye-glazing detail about what it does, let’s just focus on its staggering market potential. Fewer than 10% of mid- to large-sized data centers utilize it, and 451 Research says DCIM supplier revenue will reach $1.8 billion by 2016, representing a 44% compound annual growth rate.
While migrating away from mainframe services, ala IBM, the DCIM provider is also focusing on growing its cloud market share. Cloud is estimated to become a $148.8 billion global market in 2014, $160 billion in 2015, and $207 billion in 2016.
Known for having a strong pipeline and healthy financial books, it also delivers an impressive 4.5% dividend.
NICE Systems (NICE)
While J.P. Morgan (JPM) lowered its IT spending forecast for 2013, it sees a 3.6% growth on the horizon in 2014. That bodes well for NICE Systems, which provides solutions for capturing and analyzing customer interactions across communication channels such as phone, surveys, email and the Web -- otherwise known as a Big Data platform.
Its second-quarter revenues rose 4% to $225 million year over year and the acquisition of Causata, a provider of real-time Big Data analytics technology, is expected to help drive growth in 2014.
An added bonus with NICE is its foray into the security industry with Actimize. It’s the largest and broadest provider of a single financial crime, risk and compliance software platform for the financial services industry.
Sorry, no dividend here. However, during that volatile April-June period, NICE stock rose 27%; and while the rest of the market dipped nearly 3% in the last five trading days, it gently fell 0.18%.
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I suspect the market will deep dive soon - maybe in November this year.
Until the middle class is recovered, our entire economy will remain a mess.
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Traders might want to bite on BABA, but long-term investors have reasons to wait.
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