My Favorite Tech Plays For 2014

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January 12, 2014 7:27pm NASDAQ:SKYY NYSE:FBT

2014Michael Robinson: When we began this journey together a few months ago, we started with a single powerful concept.

Fifty-seven percent of U.S. workers have less than $25,000 in saving – a reality that sentences those folks to a lifetime of vulnerability and fear.

After reading that, we vowed to help you dodge that bleak fate.

The key, we knew, was the U.S. tech sector.

From the lightbulb to the semiconductor to advanced sensors, America’s Silicon Valley has churned out a steady stream of innovations that turned ordinary people into millionaires – sometimes virtually overnight.

So we identified seven powerful high-tech trends. And then we used my years of experience as a Silicon Valley insider to create five immutable rules we could use to identify double-your-money profit opportunities.

As we’ll show you in an upcoming report, our strategy has already generated some impressive gains. And there’s more to come.

The road to wealth, as we like to say, is paved by tech.

And today is the next phase of this journey.

My Favorite High-Growth Profit Plays for 2014

I see still more growth in the New Year, particularly in the global tech sector.

With that in mind, I want to talk with you today about my three favorite profit plays for 2014 –stocks to buy that I believe will pack a punch for your portfolio.

So without additional introduction, let’s get down to business – because we don’t want you to be part of the ill-fated 57%.

And with the Strategic Tech Investor working on your behalf, there’s no need to be…

When we unveiled our strategy back in the spring, I said you could get started immediately. The reason: I was predicting that 2013 would be a strong year for investing in tech stocks.

I was right.

The tech-focused Nasdaq Composite Index has gained nearly 33.5% this year – in spite of such challenges as the U.S. “Fiscal Cliff,” the scandalously flawed rollout of Obamacare, and the longstanding worries about a U.S. central bank tapering, to name just a few.

And the gains aren’t going to end there.

Tech investors stand to make a lot of money in the New Year as Silicon Valley innovators continue to create all sorts of new tech-based products and services.

Not surprisingly, the seven high-tech trends we identified earlier this year helped us define these newest picks.

And we’ll start with “The Cloud.”

Out in Space – Cyberspace, That Is…

One of the “quiet revolutions” taking place in tech has to do with how all the “stuff” that we use online is accessed and stored. And it’s a big deal.

Businesses no longer have to buy, set up, and run their own computer networks. Instead, they’re tapping the power of the Cloud.

Cloud computing refers to an innovation that allows third-party vendors to host applications for clients who can then access them from any place at any time – needing only the usual Internet connection.

It sounds simple. But make no mistake – it’s huge.

The respected research firm Forrester predicts Cloud computing will increase from a $41 billion base in 2011 to $241 billion in 2020. We’re talking growth of roughly 487% by the end of this decade.

That’s why I think most investors would do well to take a serious look at First Trust ISE Cloud Computing Index Fund (Nasdaq: SKYY). Trading at $25, this exchange-traded fund (ETF) holds about 40 stocks and serves as a “Who’s Who” of Cloud-based firms.

Although it holds some fast-moving smaller caps, the ETF is focused on such major players as Inc. (Nasdaq: AMZN), which became a Cloud leader by simply renting out the surplus capacity in its massive data centers.

Some other holdings include:

  • Google Inc (NSDAQ:GOOG), which also has built a Cloud business by turning its huge computer network into an additional revenue stream. With a $360 billion market cap, Google increased its earnings 36% last quarter, in part because of a 24% operating margin.
  • Red Hat Inc. (NYSE: RHT), a leader in providing open-source software that can be accessed and managed via the Cloud. With a $9 billion market cap, Red Hat has a 15% operating margin and $843 million in cash with no debt.
  • Brightcove Inc. (Nasdaq: BCOV), a specialist in using the Cloud to help firms publish, manage, and distribute video. With a market cap of $381 million, the company has negative margins but is growing at nearly 40% a year.

A Bio Blast

The biotech sector was a hot performer in 2013, and you can expect that to carry over into the New Year.

In fact, the cash-rich and cash-needy marketplace will continue to see hefty growth fordecades to come.

Mature economies like those of the United States, Japan, and Europe offer the industry incredible long-term opportunities through a combination of aging populations, longer lifespans, and a deep pipeline of new drugs in development.

And such emerging economies as China offer growth as rising incomes allow consumers to seek better healthcare.

Biotech already plays a huge role in the global economy. Market researcher IBIS Worldestimates the industry’s annual world sales at $93 billion. Since 2008, the industry has averaged an annual compound growth rate of 11%.

That’s why I believe First Trust NYSEArca Biotechnology Index (NYSE: FBT) should be in every tech investor’s portfolio.

Priced at about $66, this ETF represents a unique play because it gives us broad biotech exposure with a fund that also takes a very focused approach: It holds just 20 stocks in its portfolio – each accounting for about 5% of the portfolio.

The stocks in FBT have a median market cap of about $6.3 billion. That’s large enough to offer stability but still small enough to deliver plenty of upside. Some key holdings include:

  • Alexion Pharmaceuticals Inc. (Nasdaq: ALXN), a company focused on ultra-rare diseases. With a market cap of $24 billion, Alexion has a 24% profit margin and return on equity 16%.
  • Gilead Sciences Inc. (NASDAQ:GILD), which has products that fight HIV/AIDS – as well as liver, heart, and respiratory-based diseases. With a market cap of $109 billion, it has a 29% profit margin and last year had free cash flow of about $2.6 billion.
  • Regeneron Pharmaceuticals Inc. (Nasdaq: REGN), a firm whose main product combats blindness in older people. With a $26 billion market cap, the firm has a 42% profit margin and a return on equity (ROE) of 87%.

The Art of the Deal

As for the third area where investors should do well next year, I recommend you follow the market for high-tech initial public offerings (IPOs). These stock-offering deals did great this year – and I expect them to do just as well in 2014.

In the first nine months of the year, market forecaster PwC said there were 160 IPOs, up 48% from the 108 new stock offerings that took place in the same period last year.

And Dealogic says tech debuts gained an average of 60% this year, compared with the IPO average of 33%. High-tech and bioscience stocks made up about a third of the new stock offerings.

The First Trust IPOX-100 Index Fund (NYSE: FPX) is a great way to play this field. The ETF takes advantage of IPOs. Trading at about $44, the ETF has about one-third of its cash invested in new tech and healthcare issues.

One of the great things about this ETF is that its managers created a disciplined set of rules that sidestep the volatility inherent in newly minted stocks. For instance, the fund only invests in stocks after doing a thorough review of the company’s financials and never buys on opening day.

By definition, the fund does not heavily invest in the sexiest small and micro-cap firms. Instead, the ETF is weighted toward mid-caps with an average market valuation of roughly $3.3 billion. The fund’s top holdings have generated excellent gains, including:

  • Facebook Inc (NASDAQ:FB), the social-networking firm whose shares are up about 40% since going public in May 2012. But it’s gained 98% in the past year.
  • AbbVie Inc. (NYSE: ABBV), the biotech spin-off from drug giant Abbot Laboratories Inc. (NYSE: ABT). AbbVie shares have rallied about 49% since it debuted in January.
  • Tesla Motors Inc (NASDAQ:TSLA), the maker of electric cars whose shares are up nearly 670% since going public in July 2010 – even after a recent correction.

Each of these ETFs represents a true investing double play.

On one hand, the access they provide to the hottest tech stocks means you’ll have a chance to earn returns that are far above the market averages. At the same time, however, the diversification they offer means they also represent great foundational plays.

And that’s a great way to start a New Year.

Money MorningWritten By Michael Robinson From Money Morning

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially ; and a technological revolution even in the most distant markets on the planet. And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.

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