Make Millions in Tech

Silicon Valley is its own world ("the Valley"), with its own language (geekspeak), 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 all 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

n/a

1995

$2.232 billion

67.3%

1996

$4.096 billion

83.5%

1997

$6.452 billion

57.5%

Source: Capital IQ

Investors who seized the momentum in 1994 have seen their original investments increase more than nine times in value. Those who waited till January 1997 are sitting on a better than 275% gain today, which is more than double the market's return over the same time frame.

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. You're looking for technologies on which corporate chief information officers (CIOs) are willing to spend big money. A quick Google search of "spending priorities" and "tech" brought forth this article, which suggests that content-management software that helps to collect, organize, and publish data from documents and other ad-hoc sources is still in 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 CAGR

Kintera (Nasdaq: KNTA  )

120.1%

Open Text (Nasdaq: OTEX  )

31.4%

Adobe Systems (Nasdaq: ADBE  )

25.0%

Stellent (Nasdaq: STEL  )

23.9%

EMC (NYSE: EMC  )

22.0%

Interwoven (Nasdaq: IWOV  )

21.2%

Microsoft (Nasdaq: MSFT  )

11.6%

Source: Capital IQ

Could any of these be the next great growth stock? It's certainly possible. The list already sports some of the best names in tech, including Microsoft and Adobe, both of which have already transformed thousands into millions.

Open Text could be next, if only because it's growing the bottom line at a blistering pace. Per-share adjusted net income rose by nearly 85% in the most recent quarter, for example.

Moreover, researchers such as Gartner have recognized its platform for content management as one of the best in the business. That's a good sign that could foreshadow continued hypergrowth.

Make millions in tech
Learning about the information technology industry isn't easy, but the rewards of study 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.

This article was originally published on July 15, 2006. It has been updated.

Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on all of Tim's stock holdings by checking his Fool profile. Microsoft is a Motley Fool Inside Value pick. The Motley Fool's disclosure policy is a rebel with a cause.


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