Where to Invest In Technology Today


A few weeks ago I wrote about the smart-phone revolution and some of the explosive opportunities in the technology sector. Recently we've seen an uptick in merger and acquisition activity (not just in this sector but others as well) that just serves to underscore my point that there is a sea-change underway. It's all about how, where, and when we interact with information.

I can more or less sum this up in one word: mobile technology.

Apple received 600,000 advance iPhone orders on the first day customers could sign up to receive the iPhone 4, and it has recently seen strong demand for its new product - the iPad.

Intel (Nasdaq: INTC) just announced that it is buying Infineon's (OTC: IFFNY.PK) wireless processor business. Why? Because tablet devices like the iPad are flying off the shelves and these don't use Intel's processors. In order to grab 'missing' sales, Intel needs to grow its presence in the emerging mobile device space.

As I wrote a few weeks ago,

"Tech companies are always coming out with new products, and the rate of technological advancement is only increasing. Nowhere is this more apparent than in the smartphone industry.

There was once a time when you saw only businessmen and wealthy individuals using smartphones. But now they are becoming more accessible to the average person - and are stealing market share from basic cell phones as features such as music, video streaming and web browsing become increasingly more attractive to the general public."

***The same switch that is going on with smart-phones (from feature phones) is also going on with mobile computer alternatives like the iPad. Face it, we're become a walking, talking, texting, video conferencing world.

As of the fourth quarter of 2009 more than 20 percent of the mobile-phone market was taken up by smartphones. Analysts at Nielsen, a market research firm, predict smartphones will overtake feature phones before the end of 2011. If you missed the chart I published earlier, here it is again.

Whether or not smart-phones and their big brother tablet devices become the dominant players in the mobile market by the end of 2011, the strong trend toward these mobile devices is undeniable.

The mobile world will never deny itself the simple pleasures these devices allow once it's hooked. Ask yourself, what is your willingness to pay for mobile connectivity; $50 per month? $100? $150 even? The better the equipment and services get, the more we want them - and the more we can shut down traditional wire-line services that we can only use at home.

Consumers want phones that let them listen to music, surf the web, watch video, and access a wide array of applications. Maybe even occasionally make a call or two.

***Of course, no investment is a slam-dunk, if you play by the rules. And there are constraints holding back the mobile world. I'll repeat the cautionary warning I issued earlier:

"There is, however, a dark-side to this smartphone revolution. The web-browsing, video-watching, Pandora-streaming mobile devices devour bandwidth. Bandwidth refers to the data transfer rate on a network, and these little machines consume huge amounts of it. That wouldn't be a problem if providers could deliver unlimited data. But providers can't - so bandwidth is becoming an increasingly scarce resource.

AT&T ( T ) is the provider of choice for smartphone companies like Apple and Research in Motion (Nasdaq: RIMM) , maker of the Blackberry device. As such, AT&T's successes and failures foreshadow what the entire industry will soon experience.

The company is desperately trying to update its infrastructure to accommodate the massive bandwidth demands of customers. It's fighting a losing battle, as AT&T is being attacked on two fronts.

There is a literal fear of network collapse among mobile providers, and they're scrambling to find a solution."

***I like to invest in solutions to the technological challenges created by the rapid pace of tech development (and I might add: the rapid rate of adoptions of these technologies).

So I want to remind you that I recently uncovered a tiny Israeli technology company that develops technology specifically designed to manage bandwidth use. The company's solutions are critical for Internet Service Providers ( ISP ), cable companies, landline operators, mobile phone companies, businesses and governments.

In early August I pulled the trigger and added this small cap stock to the Small Cap Investor PRO portfolio . We're now up over 14 percent on the position, and I've seen volume surge in recent days. I'm not a big speculator, but I wouldn't be the least bit surprised to learn that some of the big technology companies are eying this tiny firm's technology.

That said, I don't encourage investing on speculation alone, so I've done the research to make sure this company is a good investment as it stands today.

In the first and second quarters of 2010, this tiny tech company reported greater than 30 percent revenue growth over the comparable quarters in 2009. It is profitable on a non-GAAP basis, and is sitting on $55 million in cash.

This is a great investment opportunity in the mobile space. If you're interested you can get my full research report on the company when you sign up here .

***There are a few things to understand if you're interested in investing in the mobile computing world. And the two biggest things are to understand are bandwidth demand, and the right to control information as it circulates the airwaves.

So I'll repeat what I've said before:

"As more people use smart-phones [and tablet devices] to listen to music, watch videos, or surf the web, companies are trying to accommodate the massive bandwidth demands of their customers. Bandwidth refers to the data transfer rate on a specific network, and these tiny devices eat up large amounts of it.

There are a few caveats to consider before investing in this space. The big one is that bandwidth segmenting technology has its enemies. The technology plays a pivotal role in the United States' net neutrality debate.

The idea of net neutrality is that all customers should have equal access to bandwidth, and all should pay the same rate for the same service. Service providers disagree. They think bandwidth hogs should have to pay more since they consume more. These bandwidth consuming individuals (or firms) make the overall service more expensive, which providers claim is unfair.

The bottom line is this: the book is not closed on net neutrality, nor will it be for some time, if ever. The debate could hold bandwidth management firms from moving drastically higher, especially if they have large exposure to the U.S. market where the FCC is still debating net neutrality. But this is not the case in many overseas markets, and companies with a solid foothold in the market are unlikely to see their stocks fall dramatically. In other words, I believe there is more upside potential with companies like the one I recently recommended than downside risk."

***There are a lot of ways you can follow this market. But if you'd like some help, check out my research report on this company. Take a trial subscription to Small Cap Investor PRO and read everything I've written about it. If you don't like it - cancel your subscription. It won't cost you anything, except the time to read the research.

This company is a play on the future growth of smartphones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior. What's more, this tiny company is certainly a potential takeover candidate and management has shown an ability to orchestrate acquisitions in the past. Investors should expect solid gains with this low-beta micro cap, although intra-day price volatility will be high due to poor liquidity.

Let me know if you sign up, and if you like my report. My address is: editorial@smallcapinvestor.com .

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: ISP , T

Wyatt Investment Research

Wyatt Investment Research

More from Wyatt Investment Research:

Related Videos




Most Active by Volume

  • $10.50 ▲ 3.04%
  • $29.22 ▲ 4.62%
  • $16.36 ▼ 0.49%
  • $113.29 ▲ 0.33%
  • $2.39 ▲ 4.82%
  • $5.78 ▲ 0.87%
  • $105.62 ▼ 0.02%
  • $28.42 ▲ 2.53%
As of 8/28/2015, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com