Our Top 5 Tech Stocks for 2011

Last December, Motley Fool writers chose Our Top 5 Tech Stocks for 2010 and crushed the market by an average of 70%, but this is a new year, and we have new picks.

Our approach to tech investing is simple, as Tim Beyers wrote, "Great tech stocks are all the same. They generate high returns because they're platforms, generating support not only from their users, but also an entire ecosystem of partners and developers."

Before we get to the selections, let's first review where we've been.

The year in tech
The year started off with Google deciding to stop censoring its search results in China. Baidu (Nasdaq: BIDU  ) benefited greatly as its market share in Chinese search rose from 58% at the beginning of the year to 73% by November.

The major trend of the year though, by far, was the staggering growth in mobile. For example, in 2009, 300 million apps were downloaded. In 2010, 5 billion apps were downloaded. That's more than 1500% growth! Besides the huge growth in apps, Motricity (Nasdaq: MOTR  ) , a mobile phone content company, IPO'd and recently doubled. Apple remained on top with its iPhone and added the iPad to the mix. It has nearly broken the $300 billion market cap barrier. Finally, Research In Motion (Nasdaq: RIMM  ) was forgotten by investors and now trades under 10 times earnings.

Speaking of forgotten, one issue that was expected to be prominent but has largely gone nowhere was network neutrality. The most recent grumblings came after a dispute involving Level 3 Communications (Nasdaq: LVLT  ) . Level 3 had notified Comcast it was about to send data from a new deal with Netflix (Nasdaq: NFLX  ) through it and didn't want a rate increase. This later created a stir when Level 3 said Comcast was violating the idea of net neutrality after Comcast demanded additional payments for the additional traffic it would handle. While this incident has different implications from net neutrality, rules for net neutrality are still being hammered out, and Federal Communications Commission Chairman Julius Genachowski hopes to have regulation in place by the end of the year.

Finally, tech buyouts are back, as well are IPOs. Intel bought McAfee, HP bought ArcSight and 3Par, and IBM bought Netezza. There were more than 30 tech IPOs including Meru Networks (Nasdaq: MERU  ) and MaxLinear (NYSE: MXL  ) .

What you've all been waiting for
It's from this vantage point that we look ahead to 2011. Our writers selected stocks they thought were not only priced for profits, but had platforms that are made to last. With the new year fast approaching, here our top tech stocks for 2011:

1. Google
Google is on our list again this year; Anders Bylund explains why Google is unbeatable, cheap, and still a rule breaker.

2. LivePerson
You may not know it, but LivePerson is the nation's leader in Web-based live chat support with thousands of clients. Rick Munarriz explains why he thinks LivePerson will be a big winner in 2011.

3. Qlik Technologies
Tim Beyers explains how this disruptive analytics company has growth momentum, a huge market, and hidden value.

4. IPG Photonics
A perfect storm has sent the fiber laser business skyrocketing. Eric Jhonsa explains why IPG Photonics has room to run.

5. EMC
EMC has been steady while its 80%-owned subsidiary VMware is taking off. Eric Bleeker explains how EMC is a cash generator that stands to benefit from explosive data storage trends and has a powerful cloud computing kicker on top.

What do you think the top tech stock will be in 2011? Please read what my colleagues have to say, and let us know your best ideas using the comments box below.

Dan Dzombak is The Motley Fool's Internet and technology editor. Google is a Motley Fool Inside Value selection. Google, IPG Photonics, LivePerson, Baidu, and Qlik Technologies are Motley Fool Rule Breakers picks. The Fool owns shares of Google, IBM, Apple, and IPG Photonics. Netflix and Apple are Motley Fool Stock Advisor choices. Intel is a Motley Fool Inside Value selection. The Fool owns shares of and has bought calls on Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (22) | Recommend This Article (115)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 14, 2010, at 1:57 PM, langco1 wrote:

    google is done reduced to making cheap copies of everyone elses ideas..a online phone directory that has seen its best days...

  • Report this Comment On December 14, 2010, at 2:26 PM, TMFMileHigh wrote:

    @langco1,

    >>a online phone directory that has seen its best days...

    I'll take that bet. Even so, I'd love to see you expand on your bearish thesis. What will replace Google? How?

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On December 14, 2010, at 4:00 PM, TMFDanDzombak wrote:

    Anyone have a stock they think should have been included?

  • Report this Comment On December 14, 2010, at 6:04 PM, MegaEurope wrote:

    LPSN and QLIK look like good short ideas. I wouldn't buy them for half of the current price.

    I would rather own AAPL, GOOG, MSFT, INTC, CSCO, HPQ, RIMM, GLW, LPL, SNDK, MU, WDC, STX, MRVL, SYNA, EBIX, TNDM, TSYS, RRST, ALIF or many others.

  • Report this Comment On December 14, 2010, at 7:01 PM, TMFMileHigh wrote:

    @MegaEurope,

    You'd short QLIK? Interesting. Curious to hear your short thesis.

    Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On December 14, 2010, at 9:54 PM, shivy1 wrote:

    Wow these valuations are ridiculous, I don't think these companies have enough growth to support such high multiples. The only one that looks mildly interesting is IPGP, I don't know much about the fiber laser business though.

  • Report this Comment On December 15, 2010, at 12:28 AM, Wade32ru wrote:

    DDIC - had a run, but still cheap.

  • Report this Comment On December 15, 2010, at 12:33 AM, glenrgraham wrote:

    Long on Intel [INTL] - Return on Equity 24.37; P/E 11.61; Yield 3.35%, Motley Fool Caps Rating 4; MSN Stock Scouter 10 !

  • Report this Comment On December 15, 2010, at 10:54 AM, TMFDanDzombak wrote:

    @Wade32ru @glenrgraham Thanks!

  • Report this Comment On December 15, 2010, at 12:38 PM, MegaEurope wrote:

    TMFMileHigh wrote:

    "You'd short QLIK? Interesting. Curious to hear your short thesis."

    Obviously it is expensive trading at 13x book value, 187x earnings, and 9x sales. Tim makes a good point that we should look at cash flow as well as earnings, but they are still trading at 46x FCF. (Correct me if any of these numbers are wrong.)

    Furthermore, QLIK's recent growth looks weak. Yes, revenues are up 35% YOY - but sequential results are much worse. Q4 last year was good, Q1 and Q2 were weak, Q3 was OK. If they don't start growing in a serious way, the market will punish them.

  • Report this Comment On December 15, 2010, at 12:49 PM, GetMeTheBigKnife wrote:

    AMD Fusion - Turnaround innovation, moving forward fast with keen vision will leave Intel flat.

  • Report this Comment On December 15, 2010, at 1:11 PM, gcor1952 wrote:

    ANTS ?

  • Report this Comment On December 15, 2010, at 1:27 PM, TMFMileHigh wrote:

    @MegaEurope,

    Thanks for replying. I really appreciate seeing the bearish view.

    I'll take a closer look, but I should mention the pattern you describe is to be expected. QLIK sells annual maintenance subscriptions that are a growing portion of revenue. Re-ups are always going to be big in Q4 and then decline sequentially. From the 10-Q:

    "License revenue reflects the revenue recognized from sales of licenses to new customers and additional licenses to existing customers. Historically, the majority of our license revenues have come from new customers. However, going forward we seek to increase the contribution from existing customers based upon our “land and expand” sales strategy. Customers can renew, and generally have renewed, their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid. Current customers with maintenance agreements are entitled to receive unspecified upgrades and enhancements when and if they become available. We have experienced growth in maintenance revenue primarily due to increased license sales and growth in our customer base and high retention of those customers. In 2009, our annual maintenance renewal rate was greater than 85%."

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On December 15, 2010, at 4:18 PM, TMFDanDzombak wrote:

    @GetMeTheBigKnife @gcor1952 Thanks!

  • Report this Comment On December 15, 2010, at 6:29 PM, ThriveCounseling wrote:

    No healthcare technologies? I don't disagree...but that just shows healthcare is still way behind in becoming innovative re: technology. As early adopters at http://thriveworks.com , we've been using EHR for a couple years, and know that soon (apparently not this year) but soon a major player is going to dominate that space--jump all over that tech company when you see it!!

  • Report this Comment On December 16, 2010, at 10:48 PM, SueGen wrote:

    Live person doesn't seem like a growth idea -- I never use it when it's pushed. It's annoying and even though I'm a seasoned online shopper, I think that once you get used to shopping online, you like good pictures of the product and text that you can quickly scan...one advantage of shopping online is not having to talk to anyone!

  • Report this Comment On December 17, 2010, at 11:01 AM, EuroBob7 wrote:

    I bought Google in August based on a MF recommendation that it was good value under $500. Now I wish I had bought more than I did but are you saying it is still good value under $600? Thanx for feedback.

  • Report this Comment On December 18, 2010, at 6:03 AM, dromos wrote:

    I HAD BOUGHT ACCORDING TO YOUR OPINION

    ENSG ON JANUARY AT$ 18,10.

    ACCORDING TO YOUR OPINION ALSO, ABOUT

    1-2 MONTHS AGO, WHEN CEO OF THE COMPANY CHANGED SUGGESTED TO 'SELL.

    I FOLLOWED YOUR IDEA AND LOST MUCH

    MONEY AT THE PRICE OF ABOUT $ 17.

    NOW WITH THE PRICE OF NEARLY $ 23......

    THE RESULT IS MINE AND YOURS.

    BEST REGARDS

    DROMOS

  • Report this Comment On December 19, 2010, at 10:05 PM, Blueman1000 wrote:

    Wow this is great, a lot of education here along with strong but professional disagreements. I'm an individual self taught investor, I have to say this Live-Person thing just doesn't hit me in the gut. I mean I just don't buy into it. Just because you linger on a site and a pop up box asks you a few questions and you end up buying can they really claim a victory? Count me out on LPSN.

  • Report this Comment On December 22, 2010, at 5:35 PM, JoeFriday007 wrote:

    QLIK has shown up in a few recommendations so I have been looking into this stock. One thing which stands out to me as a red flag is recent insider trading - all on the sell side - to the tune of over $100 million worth of shares. When the insiders are selling at this rate it suggests they may know something we don't - something not good.

  • Report this Comment On December 31, 2010, at 6:07 PM, aleax wrote:

    My online broker (OptionsHouse -- unfortunately a wholly owned subsidiary of a huge, privately-held trading combine) uses LivePerson as one of the ways I can get customer support.

    The quality of OH's customer support is one of the main things that contributed to drive essentially all of my trading there (together with the very low commissions, great trade execution, good bundle info feeds and tools, very decent SW, &c, of course).

    I think part of why LivePerson helps their customer support is that, by offloading much customer support service workload to the high-efficiency online-chat and email exchanges, it reduces load on the phone and lets me get connected (when I have a problem I'd rather handle by voice) with a person by voice phone much faster than with other brokers I used in the past (Smith Barney, Zecco, Merrill Lynch) or still use (Vanguard, but essentially just because that's where my employer keeps the 401k) -- and that person, less crazily overworked than most customer service representatives, ends up being less hurried, more courteous, more knowledgeable. At least, that's part of my guess (I imagine it also means OH is investing more in customer support overall than other discount brokers, even though all I mentioned charge commissions much higher than OH's 2.95 for stock trades).

    Kind of like -- by offering superior integrated online service, info and tools for trading, they get few enough calls to their trading desk (basically only for complex issues, such as hard-to-borrow stock for shorting, or wanting to exercise an option you own that did not close in the money due to just-after-hours-on-expiration breaking news, &c;-), that they can offer the same 2.95 commission for stock trades done via a human broker reached by phone at the trading desk (the only broker I've even heard of with such low rate, by an order of magnitude!, for broker-assisted trading via voice phone!-).

    OH (or their parent PEAK6) appears to have the right approach to in-house development vs outsourcing of SW tools: they do them in-house where they have a "competitive moat" (trading proper, research, some tools), else they outsource to "best of breed" suppliers (ivelocity for some tools, liveperson for customer support, gotomeeting for webinars, &c). I'm sad I can't invest in them!-). Ah well, at least I can invest in LivePerson -- one of said "best of breed suppliers". So, tx for the pointer!

    As the importance of customer support to keeping customers happy (and retaining them) grow, as we grow wearier and more frustrated with interminable, undecipherable "phone menu trees", hours on-hold, and similar aggravations, LivePerson's business should only grow, apace with online commerce or even faster than that. I'll do my own research in depth, of course, but (as an indirect user of their service through my broker) I really like it at "elevator pitch level", i.e., in the 5-minutes-story version Peter Lynch always recommends having on the companies you choose to invest in!-)

  • Report this Comment On February 02, 2011, at 3:01 PM, gt1135 wrote:

    I'd like to add a personal anecdote. I read about LivePerson when it was first recommended by RuleBreakers. A colleague of mine who is also a Rule Breakers member read about it also and he was pretty excited about it. I thought it was a terrible pick, for most of the same reasons that have been mentioned above. I don't need an online salesperson to help me buy stuff. Its just a waste of time. I still agree with that, for that particular type of website. However, last month I was shopping for an new health insurance plan and I had some questions. Lo and behold, the website I was on, used LivePerson, and what a help it was. I was able to get so many more questions answered, so much easier than on the phone. The best part was that I could copy it all and save it to my hard drive for future reference. Try doing that on a phone call. So, I think there is definitely a niche for LivePerson, but I don't think online merchandise shopping is the place for it. I think its best used in shopping for services, (think home improvement services, insurance, tax, etc), or anything that is more complex than just picking out your favorite DVD and clicking Buy. Heck, even computer retialers like Dell would benefit from LivePerson during computer customization.

    How big it can get in that niche is what you need to decide.

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