Technology stocks have always been a more speculative segment of the stock market. But you can turn the odds in your favour by investing in those that have hidden assets, or assets that other investors overlook.

Hidden assets are items that don’t show up on a company’s balance sheet, but can offer dramatic rewards for investors who are able to spot them.

This technology stock’s research spending is a key hidden asset

One of the key hidden assets we look for when selecting technology stocks is high research spending. (More on exactly how research high research spending can mask a company’s profit potential below.)

It’s something that Autodesk Inc. (symbol ADSK on Nasdaq), one of the technology stocks we cover in the current Stock Pickers Digest, has used to great effect over the years.

Autodesk gets nearly 90% of its revenue from its AutoCAD software, which is the world’s top-selling computer-aided design program. About four million architects and engineers use AutoCAD to design and test new buildings and products.

The company spends a high 27% of its revenue on research. Even more important, it uses these funds effectively: it is currently working on transforming its software from 2D models to 3D. That speeds up the design process, and improves the quality of the final product. Innovations like these keep Autodesk ahead of other technology stocks in the computer-aided design market.

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Slower construction activity in the wake of the recession has hurt demand for Autodesk’s software. In response, the company has laid off workers and consolidated facilities.

But an improving global economy should help spur demand for Autodesk’s design software. Moreover, the company’s strong balance sheet should let it keep buying smaller software firms that complement its technology or expand its geographic presence.

How research spending can hide a technology stock’s profit potential

Tech firms like Autodesk have to treat their research spending as a day-to-day expense, much like maintenance or taxes. So research spending comes out of the current year’s sales, and it lowers the current year’s earnings.

As a result, earnings per share for many tech stocks may appear lower than for stocks in other sectors. That’s why many investors overlook promising tech firms. But, as is the case with Autodesk, research and development spending has the potential to pay off in dramatic long-term returns.

We’ll continue to keep you updated on how to spot hidden assets (like research spending) and the progress of Autodesk’s research efforts in our Stock Pickers Digest newsletters and hotlines. Click here to learn how you can get one month free when you subscribe today.