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Tech stocks to watch
Want to own tech but looking for something a little smaller? Here are four names worth a look.
November 18, 2005: 2:16 PM EST
By Amanda Cantrell, CNN/Money staff writer

NEW YORK (CNNmoney.com) - Tech stocks are the rebound, but some of the big guys may still be too expensive.

If you're looking for names that don't fall into the mega-cap category and could actually provide some growth potential, here's a quick look at some companies that have been growing at a rapid clip. All companies mentioned have a market cap of under $1 billion and expected earnings growth in 2006 of at least 20 percent.

Trident Microsystems (TRID (down $0.62 to $31.84, Research))

Closing price as of November 17th: $32.46

Market cap: $870 million

Expected earnings growth from 2005 to 2006: 458 percent

52-week range: $14.31 - $37.17

Pros: As a maker of image processing chips for digital TVs, Trident is well-positioned in a hot market. Analyst Daniel Gelbtuch of CIBC World Markets said the stock is his favorite name, noting that Trident is a big supplier of chips to Samsung, Sony and Sharp, three of the biggest players in the digital TV space. Gelbtuch said that quality is a premium in the space, and Trident has the goods – so much so that Sony dispensed with its internal design team in favor of Trident, according to Gelbtuch.

Cons: Concerns about consumer demand for expensive flat-screen TVs during the holiday season has caused some uncertainty in the stock, according to Adam Benjamin, an analyst at Jeffries & Co. who is nonetheless bullish on the stock. Also, CEO Frank Lin indicated he will soon start selling some of his shares of the company, indicating a lack of conviction, but Benjamin is not fazed by the move. "In my mind he's just being responsible and diversifying his net worth," said Benjamin.

Hollywood Media (HOLL (down $0.04 to $4.19, Research))

Closing price as of November 17th: $4.23

Market cap: $136 million

Expected earnings growth from 2005 to 2006: 113 percent

52-week range: $3.61 - $5.69

The Internet entertainment company runs Broadway.com, a ticketing site for Broadway shows, as well as Hollywood.com, an online entertainment portal. It also owns a 26 percent stake in another ticketing Web site, Movietickets.com, as well as a data syndication business based on a show business database that one analyst called "the Bloomberg of the entertainment business." The database counts many of the major Hollywood studios among its customers, according to Jeffrey Shelton, an analyst with Natexis Bleichroeder Inc.

Pros: The company just announced a strong third quarter, with a 52 percent increase in net revenues over the same quarter last year, a 69.7 increase in Internet ad sales revenue, and a 63 percent increase in Broadway ticketing revenue. The company also just launched a newly re-tooled version of Hollywood.com.

"The company is in a number of segments," said Shelton. "It's setting itself up for a nice 2006, with revenue being driven by Broadway.com and a syndication business. The company not only benefits from growth in its box office but has been gaining market share as well. I expect that to help fourth quarter as well as 2006 performance."

Cons: Shelton said the company has been working through a number of cost-cutting initiatives, and it remains to be seen how successful the company's cost-cutting measures will be. He added that the company could use more cash on its balance sheet, in part to enable more strategic acquisitions.

Hypercom (HYC (down $0.03 to $6.79, Research))

Closing price as of November 17th: $6.82

Market cap: $357 million

Expected earnings growth from 2005 to 2006: 429%

52-week range: $4.11 - $7.25

The Phoenix-based maker of point-of-sale payment systems has just inked potentially lucrative deals with drugstore chain CVS as well as Norway's largest gaming company.

Pros: George Sutton, an analyst with Craig-Hallum Capital, said Hypercom is currently benefiting from a great economic landscape for point of sale devices, particularly in emerging markets in Asia. Domestically, Sutton believes Hypercom has won deals with major discount and department stores. "There's a big ground swell of interest in new payment technologies," said Sutton. He also lauded new CEO William Keiper, adding that Keiper has dramatically lowered the company's cost structure and reinvigorated worldwide distribution. Finally, a new mandate in some European countries to move to smart card technology is also a boon to Hypercom, according to Sutton.

Cons: The company had been dealing with an aged product lineup, but it has since introduced a new product line that has placed it slightly ahead of competitors in terms of technology, Sutton said.

Radvision (RVSN (down $0.29 to $14.50, Research))

A Tel Aviv, Israel-based maker of video conferencing systems and technologies that enable voice, video and data communication over the Internet and wireless networks, Radvision just announced a 14.3 percent year-over-year increase in revenues.

Closing price as of November 17th: $14.79

Market cap: $271 million

Expected earnings growth from 2005 to 2006: 24 percent

52-week range: 9.96 - 16.10

Pros: Radvision is well positioned to capitalize on two trends, according to Kaufman Bros. analyst Manuel Recarey. One is the build out of what analysts and techies call "3G", or third generation wireless technology, which enables cell phone users to transmit multiple forms of media and data over wireless networks (such as video and Internet connectivity).

Recarey said Radvision is currently running trials with Vodaphone, Orange and other major wireless providers in Europe. The other trend is the expanded use of video as a business communication tool, said Recarey. "You have a lot of large companies that are going to push that – Radvision is just going to ride that wave." He added that the company has good relationships with Cisco, which uses Radvision's infrastructure for its video conferencing systems.

Cons: Recarey said one potential pitfall facing Radvision is that the trends mentioned above could take longer to be adopted than he hopes. "The success of company is probably more dependent on things out of their control," he said. Also, the company's current CEO, Gadi Tamari, is resigning at the end of the year. But Recarey does not see this as a negative. "He joined four years ago with the idea of staying about four or five years and I just think he's ready to move on. I expect the expect transition to go smoothly; it's someone being promoted internally."

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For a review of Microsoft's Xbox 360, click here.

Cisco buys Scientific Atlanta: More here.

None of the analysts quoted in this story own shares of the firms they discussed, and their firms do not have investment banking ties to the companies. Kaufman Bros. makes a market in the securities of Radvision.  Top of page

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