Finding Undervalued Stocks in the Technology Industry

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  Tech

Traders love Apple ( AAPL ) and this firm is the big leader in its specific industry, however, if you move one layer up into the technology sector things change. Apple ( AAPL ) actually ranks in the middle of the pack within the larger technology sector on common fundamental and valuation metrics. Rather than a point against Apple ( AAPL ) this is an endorsement of the sector as a whole, which should perform very well if September's rally continues.

However, we can't say that an investment anywhere in this group will create profits. A smart investor will index the group to look for those with strong fundamental performance. For example, we used a few very basic criteria to create a short list of the top 33 stocks in the industry (including AAPL) and the average gain this year was 49%, much higher than the market at large. If the fundamental criteria is removed, the entire list of 500 tradable stocks in the sector moved up an average of 14%. This is an easy test that you can apply to just about any group to find the strongest performers.

You can see 5 most undervalued stocks that we found in the sector in the list below. We used the following criteria to find the list and you can experiment with the search yourself by following this link to Finviz.com.

Optionable and Shortable:
We use this criteria to filter out stocks that have liquidity problems and may be expensive to trade

Return on Equity:
Looking for a stock with a return on equity (ROE) metric above 30% is a strict requirement, it summarizes a lot of key fundamental data into one easy to use score.

Low PEG Score:
The PEG score includes the traditional P/E score divided by growth rates. It is a good way to evaluate peers within an industry or sector for being relatively over or under valued. You can learn more about the PEG score in this article and video.

GT Solar International ( SOLR )
GT Solar International ( SOLR ) has seen growth of over 53% this year.  The recent volatility here could present some opportunities for traders.

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Sina ( SINA )
With a strong ROE and analysts advising a buy with a target of up to $60/share, Sina ( SINA ) is on a rally.  Another bump here could see us jumping to those target predictions.

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InterDigital ( IDCC )
Having pushed past the near term resistance, InterDigital ( IDCC ) is now approaching resistance levels set in May.  It will be interesting to see what develops here.

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DST Systems ( DST )
Recent news may help DST Systems ( DST ) completely breakthrough near term resistance levels, and provide us with some interesting opportunities.

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Cellcom Israel ( CEL )
Having recently broken through near term resistance, and an unbelievable 291% ROE Cellcom Israel ( CEL ), is on an amazing rally.  

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Image Courtesy of crabchick

 


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: AAPL , CEL , DST , IDCC , SINA , SOLR

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