Renewed Strength in Technology Sector
One area of the market where I’ve been seeing a lot of opportunity lately is the technology sector. Not so much in the big large-cap names and not so much in the small- or micro-cap companies. I’m seeing a lot of decent opportunity in the mid-cap technology sector.
Technology is still a growth sector in the economy, but competition is fierce and only those companies with a combination of great products and excellent customer service are thriving.
Case in point: Open Solutions Inc. (NASDAQ/OPEN). I like this company for many reasons. One of those reasons is that it has built a solid business selling software and services to domestic financial institutions. Once you get established, it always pays to be selling to those organizations with the most money in the bank.
Open Solutions helps financial institutions with data processing and information management. This includes managing client information such as accounts, transactions, lending, operations, back office, client information, and reporting.
Now, the company is also helping financial institutions with Internet banking, cash management, financial accounting tools, electronic image/item processing, interactive voice response, and web hosting.
As evidence of the company’s success, Open Solutions recently reported record revenues of $107.1 million in the second quarter of 2006. This represents impressive growth of 127% over revenues of $47.1 million generated in the second quarter of 2005.
Net income in the latest quarter grew more modestly to $4.1 million, or $0.19 per diluted share, up from net income of $3.84 million, or $0.18 per diluted share, in the second quarter of 2005.
Open Solutions recently raised its revenue and net income guidance for the rest of this year, and the stock trades for a reasonable valuation on the market.
In my view, Open Solutions is representative of the renewed strength in the technology sector. I’d definitely consider some technology exposure if I was building a new equity portfolio right now.