The overall theme of successful stock market investing so far this year has been the record moves by the technology sector, with the NASDAQ staging another one on Monday.
As many of you know, there have been two major themes in my investment and trading approach: technology and China.
I have long been bullish towards Chinese stocks and the amazing potential of China as a key foreign growth area. The benchmark Shanghai Composite Index was recently up more than 140% in a year. It has since corrected over 30% and is threatening to move even lower. I would lighten my positions in Chinese stocks as the risk is high—namely any holdings in the China A-shares. I’m now near-term neutral to bearish on Chinese stocks. But for the long-term, I’m bullish.
My other major theme has been the upside potential in technology stocks. This is where you find the companies with the most innovation in this rapidly changing industry space. Finding the companies that will deliver the next best technology development could generate staggering returns.
Potential Ideas for Technology Stock Market Investing
Some of the top themes at this time are mobile, social media, networking, and Internet services. The top brand-name technology plays include Apple Inc. (NASDAQ/AAPL), Google Inc. (NASDAQ/GOOG), Facebook Inc. (NASDAQ/FB), and Netflix Inc. (NASDAQ/NFLX), to name a few. Yet these are the established companies that have already seen explosive moves.
There are thousands of much smaller technology companies that are striving to be the next big play. Of course, perhaps only a handful will actually become major companies.
That doesn’t mean you shouldn’t look at these companies. Today’s biggest players had their beginnings as small startups and ideas once, too.
Applied Optoelectronics, Inc. (NASDAQ/AAOI)
Applied Optoelectronics, Inc. (NASDAQ/AAOI), trading at around $18.92 per share with a market cap of $283 million, develops fiber-optic networking solutions geared for three networking end-markets comprising cable television (CATV), fiber-to-the-home (FTTH), and Internet data centers. The FFTH and data centers represent major growth areas, given the current and growing demand for bandwidth and speed.
For a company like Applied Optoelectronics, it’s all about delivering consistent and strong results. The company is estimated to grow its revenues by 25.6% to $162.83 million this year, followed by 21.3% to $198.75 million in 2016, based on Thomson Financial estimates. These are excellent metrics if the company can deliver. Earnings are also pegged to rise in both years.
For Applied Optoelectronics, the price-to-earnings growth (PEG) ratio of 1.16 is cheap for a growth stock.
Interactive Intelligence Group Inc. (NASDAQ/ININ)
Interactive Intelligence Group Inc. (NASDAQ/ININ) trades at around $42.39 with a market cap of $914 million. The company develops enterprise-grade collaboration, communications, and customer engagement software and cloud services aimed to help clients increase efficiency, reduce costs, and improve customer service.
The company has a global footprint with more than 35 offices worldwide servicing over 6,000 companies in over 100 countries.
Interactive Intelligence has been recognized in Software Magazine’s top 500 global software and services suppliers list for 14 straight years.
Revenues have increased over two straight years. They are estimated to continue to grow at 12.8%, reaching $385 million this year, and 11.4% to $427.8 million in 2016, based on Thomson Financial estimates.
The focus of the company will be to generate profits, which should materialize in 2017.
In all, small-cap technology companies such as Applied Optoelectronics and Interactive Intelligence are potential prospects that could generate nice returns if they deliver as expected.