The best tech stocks are the ones that continue to grow—and have hidden assets.
The best tech stocks are on a rapid growth path and will continue growing. Some of the best technology companies become so successful that they start paying dividends. Investors should also scour a technology stock’s balance sheet to glean any hints of hidden value like real estate, research and development or other valuable long-term assets.
Successful tech stocks can experience enormous growth. However, technology stocks are also susceptible to lots of market volatility—and negative news can throw tech stocks into steep declines.
The success or failure of the best tech stocks depends on a variety of factors. A company may start out with a promising business plan. But it needs all sorts of things to prosper in the long run: the right employees, a favourable economic and regulatory climate, a favourable competitive environment, positive research outcomes, adequate financing, perhaps the right merger partner or acquisition—the list is long.
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High cash and low debt aids new product development.
A strong reputation helps win new contracts.
Often tech stocks will offer different classes of shares that come with various shareholder voting rights. Investors can save money by purchasing the lower priced shares.
Is there a history of success?
Four ways to increase your rewards with tech penny stocks
There’s a delicate balance between risk and reward with tech penny stocks, but fast-changing technology can offer huge opportunities in these stocks.
It may seem contradictory to use the terms “investment quality” and “penny stocks” in the same sentence. However, there are even wider disparities in the investment quality of penny stocks than in better-established companies. That’s because, while it’s hard for any new company to grow into a profitable business, it’s even harder in pioneering fields, where most penny stocks operate.
With tech penny stocks, there are methods and tips to gain greater returns from your investments:
Diversify: The high-tech sector has more than its share of winners and duds. So invest carefully and buy 5 to 10 tech penny stocks instead of just one. Gains on your winners should overwhelm any losses you have.
Focus on up-and-coming technologies: To do this, you need to know how technology is changing. For instance, the immense popularity of wireless devices, like the iPhone and tablet computers, stepped up demand for faster, more reliable wireless networks.
Buy multi-product companies: Technological advances come in spurts, and they leapfrog each other. Focus on tech penny stocks that have some existing or soon-to-be-released products, and avoid one-hit wonders.
Look for earnings: A perpetual money loser will eventually go broke, no matter how impressive its technology. But if it makes even a little money, it can stay in business and perhaps reap the bonanza of a new product.
The “build” part refers to expanding relationships with current clients and attracting new ones. The company’s long-term outsourcing contracts give it steady, predictable revenue streams and let it sell other services to these customers.
The “buy” part involves making acquisitions. Growth by acquisition can add risk, but CGI tempers the risk of buying other companies to fuel its growth by targeting firms that complement its expertise or help it expand geographically.
The company plans to keep making acquisitions, which will help it reach its new goal of doubling its annual revenue in the next five to seven years. Most of these will be smaller purchases, which cuts the risk of using acquisitions to expand.
CGI has already identified 85 potential targets, mainly firms that would strengthen its position in its existing markets. It’s also interested in building on its expertise in fast-growing fields like cloud computing and computer security.
Fast-changing technology offers huge opportunities when investing in tech stocks
However, fast change can also bring dangers. Technology stocks may have a role in your portfolio, but you should be well aware of the risks involved with growth securities like tech stocks.
Do you own technology stocks in your portfolio? Which stocks do you own, and how have they performed as part of your portfolio? Share your experience with us in the comments.
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