Make Millions in Tech

Silicon Valley is its own world ("the Valley"), with its own language (geek speak), and its own commerce (ludicrous options grants). That's why many people I know would rather be forced to eat a gallon of soup with a fork than invest in tech stocks.

But forsaking tech stocks can be a recipe for subpar returns. Consider Cisco Systems. This tech pioneer, which specializes in the once-esoteric business of networking equipment, delivered mind-blowing returns for early investors, despite the tech crash. You could have become one of them by doing a little extra homework.

Yes, you could have
What homework? Trade magazines such as Network World were a great source of information when tech investments were taking off. Had you been a reader in 1994, you would have learned that Cisco products were helping build the digital communications backbone of the Canadian government. In 1996, you would have learned that Ryder was depending on an advanced, Cisco-powered network to keep its fleet of trucks in top working condition. And in 1997, you would have learned that Cisco employees loved their jobs so much that they were happily putting in 60 hours or more per week building the latest routers.

At the same time, had you checked Cisco's annual reports, you would have seen outrageous sales growth:

Year

Total Sales

Year-Over-Year Growth

1994

$1.334 billion

105.5%

1995

$2.232 billion

67.3%

1996

$4.096 billion

83.5%

1997

$6.452 billion

57.5%

Source: Capital IQ.

See what I mean? And even if you had waited until January 1997 to invest, you'd still be sitting on 170% gains today (more than double the market's return over the same time frame). More impressively, a 1994 investment has increased nine times in value.

What about today?
It's tempting to say that the dot-com bubble was a unique time of massive growth and that those days are gone, never to return. But I think that's crazy. Plenty of great tech stocks are available today, and some even look like Cisco did in 1995.

How to find them? Try the same trade magazines that worked back in the day. What you're looking for are technologies that corporate chief information officers (CIOs) are willing to spend big money on. A quick search of "spending priorities" in 2006 articles at computerworld.com brought forth this article, which suggests that while overall IT spending will be lower than originally expected during 2006, security software is still in high demand.

Screening for opportunities in this industry isn't too difficult. Here's a list of candidates ranked by three-year sales growth:

Company

3-Year Sales CAGR*

SafeNet (Nasdaq: SFNT  )

88.8%

VASCO Data Security (Nasdaq: VDSI  )

51.1%

Network Engines (Nasdaq: NENG  )

43.4%

Symantec (Nasdaq: SYMC  )

43.3%

Trend Micro (Nasdaq: TMIC  )

20.0%

Aladdin Knowledge Systems (Nasdaq: ALDN  )

18.9%

Checkpoint Software (Nasdaq: CHKP  )

13.9%

*Compound annual growth rate.
Source: Capital IQ


Some of these stocks strike me as potential Rule Breakers. Take VASCO, for example. While larger peer and new EMC business unit RSA Data Security has focused on the domestic market for authentication software, Illinois-based VASCO does 90% of its business overseas. It's growing remarkably fast as a result. Investors, however, have shrugged at the progress, which leaves the rebel in me very intrigued.

Make millions in tech
While learning the information technology isn't easy, the rewards can be huge. That's why we devote significant time and energy searching for those opportunities at our Motley Fool Rule Breakers growth-stock newsletter service. We think hunting for the next big technological breakthroughs will lead to the highest possible returns.

If you'd like to join us at Rule Breakers, we offer a free 30-day trial. Take us up on our offer, and you'll have free access to all our picks and research, with no obligation to subscribe, for a full month. Click here for more information.

Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim does not own shares of any company mentioned. Symantec is a Motley Fool Inside Value selection. The Motley Fool has an ironclad disclosure policy.


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