A key to why many of the largest technology companies in the world continue to grow and get bigger is their ability to acquire crucial smaller companies along the way.
Amazon.com, Inc. (NASDAQ/AMZN), with over $7.0 billion in free cash, added Kiva Systems, Inc., a company that would increase its material handling process at its warehouses. Kiva manufactures robotic machines that handle material, which creates a more efficient process—something a high-volume business such as Amazon.com demands. The $775 million in cash to be paid is not an issue, as it is capital that will be spent.
The example of Kiva demonstrates why I like small-cap stocks with a special technology or niche. These kinds of companies are open to takeovers and price appreciation, offering a top investment opportunity.
Apple Inc. (NASDAQ/AAPL), which closed above $600.00 for the first time, announced a dividend and $10.0-billion stock buyback on Monday. For the maker of the “iPad,” money is not an issue, as the company has close to $100 billion in cash. The company is a strong investment opportunity and could easily gobble up some of its rivals, but there is really no need, as the company is clearly on top of the tablet and smartphone markets with a cult-like consumer following. With its massive war chest, Apple could also acquire some key developers of technologies used in its products; but again there is no need, as companies fight hard and innovate just to sign on with Apple.
The NASDAQ has been the top investment opportunity so far in 2012, up over 18% and showing some strong technical strength. In late 2011, I said that technology would be a critical area for investment opportunity, as this sector has provided much of the leadership over the last several years.
The key investment opportunity in small-cap technology is innovation along with a massive potential market. I like semiconductor stocks, especially those with a focus on mobility applications, as tablets and smartphone gain in market share over laptops and PCs.
For instance, in the small-cap special situations area, an investment opportunity that I may take a closer look at is Glu Mobile Inc. (NASDAQ/GLUU, $3.96; Market Cap: $254 million).
Founded in 2001, Glu Mobile is an interesting small-cap tech play that holds promise in the growing area of mobile gaming on smartphones and tablets. Spending on mobile applications is estimated at around $56.0 billion by 2016, according to Forrester Research.
Mobile platforms supported include “iOS,” “Android,” “Windows Phone,” and “Google Chrome.” Revenues from smartphone applications accounted for about 75% of the Glu Mobile’s fourth-quarter revenues, according to the company. The games are developed in-house and in conjunction with key companies such as Activision, Atari, Caesar’s and Fox.
Glu Mobile is not meant as a recommendation to buy, but only as an investment opportunity that has some traits I look for in small-cap growth stocks.
The reality is that big-name technology continues to look positive; but, for higher gains, you need to look in the small-cap area for your own top investment opportunity.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 29, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 29, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)