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There’s Great Growth Potential in These Tech-y Stocks

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some technology-heavy stocks to your portfolio, the First Trust Technology AlphaDEX ETF (NYSE: FXL  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

It's essentially an "enhanced" index fund, investing in a promising subset of the Russell 1000, based on growth and value metrics.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.70%. That's higher than many ETFs but also lower than the typical managed stock mutual fund. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed rather well, beating the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why technology?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies.

More than a handful of tech-heavy companies had strong performances over the past year. Teradyne (NYSE: TER  ) , for example, makes equipment that tests technological items such as semiconductors, and its stock has soared 29% over the past year. It's expanding its capabilities, too, such as by buying LitePoint, a wireless testing specialist. Teradyne recently reported quarterly revenue up 35%, though it also tempered near-term expectations.

Another semiconductor-related concern, KLA-Tencor (Nasdaq: KLAC  ) , advanced 6%, hampered by global economic weakness that's holding back many orders. In its latest quarter, it reported revenue off by 19% over year-ago levels. It offers its patient investors an appealing 3.5% dividend yield, though. Some see both Teradyne and KLA-Tencor as possible takeover targets.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Glass and fiber-optics giant Corning (NYSE: GLW  ) , down 16%, has suffered from weakness in the LCD panel market, but that seems to be turning around, with management recently suggesting higher-than-expected LCD TV sales. Demand for its Gorilla Glass is also strong, as it's found in millions of smartphones and tablets, which are selling briskly. The company has a promising new product, as well: Willow Glass, which is thin and -- get this -- flexible., The company has hiked its dividend by 20%, and has bought back nearly 2% of its shares recently.

Marvell Technology
(Nasdaq: MRVL  ) sank 37%. Chip maker Marvell's stock seems cheap these days, but sluggish sales of PCs have been hurting it. Some are hopeful about Marvell's partnership with LED specialist Cree (Nasdaq: CREE  ) to produce a dimmable LED bulb, but others would like to see it profit more from the spread of smartphones. Its presence in Microsoft's (Nasdaq: MSFT  ) Surface tablets is promising, but it remains to be seen how successful the Surface will be. Patient investors can enjoy a 2.9% dividend yield with Marvell.

The big picture
Demand for technology isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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10/25/2016 4:00 PM
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