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What's hot in tech now
With balance sheets improving and some businesses showing promise, here's a look at the key sectors.
September 16, 2005: 2:29 PM EDT
by Amanda Cantrell, CNN/Money staff writer
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NEW YORK (CNN/Money) - Memories of the burst tech bubble still haunt Wall Street, but there are some signs of life for technology stocks.

Strong demand across many sectors has bolstered the finances of a host of firms, pushing some stocks higher and creating opportunities for people who aren't afraid of technology.

In addition, emerging markets like China and Latin America are providing growth opportunities as use of cell phones and personal computers rises.

"Technology no longer looks all that unattractive. It's a very interesting time," said Peter Misek, an analyst at Canaccord Capital, a Toronto-based investment and brokerage firm. His firm wrote earlier this year that the stock market environment for technology companies is "highly fertile."

"Corporate balance sheets are in great shape; companies are generating cash," said Barry Mills, vice president and senior research analyst at The Boston Co. Asset Management, adding that return on equity, a key measure of profitability, is on the rise for the broader market as well as for techs. That means corporate spending on technology is likely to grow, he noted.

But like many analysts, he doesn't see another boom akin to the late 1990s. "Valuations look better, but let's not get carried away. We're not back to the big growth go-go days."

Regardless of the overall health of the sector, there are still some sub-sectors that are looking good lately, according to analysts.

Here are some sectors that analysts say could present investment opportunities now:

Flat screens and digital TV. The popularity of flat-screen TVs and computer monitors is giving a boost to a host of component makers like the companies that make parts for the screens used in flat-screen monitors, cell phones, digital watches and other digital displays.

One company that makes these is 02 Micro (down $0.32 to $15.67, Research), whose shares are up 49 percent this year.Corning (up $0.59 to $20.16, Research), which also makes glass components used to build the so-called liquid crystal display screens, has seen its stock soar about 75 percent this year.

Recent negative news, such as Samsung's announcement that it may be scaling back on its investment in flat screens, as well as over capacity problems, may affect the market in the short term, but Brian Nelson, domestic analyst for the Driehaus Small Cap Growth Fund, said its long-term prospects are still good.

The digital television market also stands to gain.

"The unit numbers last year were maybe disappointing globally ... (but) with the FCC mandate to broadcast digitally, people will have to upgrade their TVs," Boston Co.'s Mills said, referring to the FCC mandate requiring TV stations to begin broadcasting digital signals by 2006.

This means that consumers who don't have the right equipment to receive digital signals will have to buy new TVs. (But under the new law, broadcasters don't have to stop broadcasting in analog until 85 percent of the TVs in their market are capable of receiving digital signals).

Automated meter reading. Meter reading lacks sex appeal, but some analysts say the sector is ripe for growth. Of the 275 million water, gas and electricity meters in the U.S., only 24 percent are automated -- meaning utility companies collect customer data remotely using telephone, radio and satellite technologies.

This translates to a significant growth opportunity for the companies who make the technology. Nelson at Driehaus likes Itron (up $0.45 to $48.75, Research), whose shares have doubled this year.

GPS Nelson is also a fan of GPS-related companies. One he likes in particular, Navteq Corp. (up $0.52 to $49.93, Research), makes digital maps for GPS systems. It currently boasts 90 percent of the digital map market in Europe and 80 percent in the U.S. And it just struck exclusive deals with Ford for GPS systems installed in Ford Explorers and with satellite radio company Sirius.

With such big gains in some of these stocks, is it too late to get in?

Though some of them have doubled or better, Nelson believes that the changes in meter reading and TV are long-term secular trends with "very aggressive growth prospects."

Consumer electronics. Boston Co.'s Mills is bullish on wireless, citing increased use of wireless technology in the mobile phone market.

"Bluetooth is for real, and there is tremendous adoption in the handset market," Mills said. "For handsets it's great as well to have a wireless headset that goes with your handset. That is an opportunity for iPod later, to have a wireless headset."

That's good news for companies like Logitech (up $0.41 to $39.15, Research), a Swiss maker of wireless keyboards and mice. Sales for Logitech's most recent quarter jumped 26 percent to $335 million from a year earlier.

Another positive sign for wireless came from Nokia (down $0.04 to $16.57, Research) this week when it raised its third-quarter earnings and revenue guidance due to strong demand for its mobile phones. The company also announced a new product for mobile e-mail for consumers. Its shares jumped almost 5 percent on the news and are up 7 percent for the year.

Nokia's good fortune also boosted Texas Instruments, Nokia's biggest supplier of the chips it puts in its cell phones. TI boosted its guidance for the second quarter and posted better-than-expected third-quarter results. Its stock is up 34 percent for the year.

Companies that make parts for cell phones also stand to gain. Nelson pointed to Supertex (down $0.42 to $29.07, Research), which makes semiconductor components that help give Motorola's popular Razr phones their thin shape.

"This is setting a precedent in terms of handset design," he said. "The Razr really took the consumer and is setting the demand in terms of design for cell phones."


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Driehaus' Nelson does not personally own any of the stocks he discussed, but Driehaus owns shares of Itron, 02, Supertex and Navteq.  Top of page

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