If there were any doubts about whether the tech boom was back in full swing, they were blown away after LinkedIn went public on the NYSE last week, writes Matt Barrie at the Sydney Morning Herald.
LinkedIn jumped 84% on its first day of trading -- the biggest initial public offering (IPO) for a tech company since Google listed in 2004. And there is speculation that other tech companies will soon complete their IPOs -- names like Zynga, Groupon, Yelp, Twitter, and Facebook, just to name a few.
"What's different compared to the boom in 2000 is that most of these companies have real business models (read: something other than advertising), and furthermore, revenue," writes Barrie. "This time around, the speed at which some of the latest tech companies have grown revenue is simply staggering."
"The Internet allows scale and distribution at a level that is unprecedented in history. Throw up a website on a shoestring budget, and you can instantly reach the 2 billion people currently on the Internet. And guess what? The other 5 billion are coming."
If you're not convinced of the legitimacy of the tech boom, consider this: Facebook took seven years to reach 600 million users. Twitter took five years to reach 200 million users. Cityville reached 100 million users in 45 days. For tech companies, there is an "unbridled opportunity if you get the business model right."
That said, investors have to be careful not to overpay for the hype. For that reason, we wanted to find a list of undervalued software and Internet stocks. We started with a universe of about 400 stocks, and identified those trading at the biggest discounts to their industry averages -- based on the price to earnings (P/E) ratio, price to earnings growth (PEG) ratio, and price to cash-flow (P/CF) ratio.
We then narrowed down the list by focusing on analyst estimates. By comparing each stock's current price to the average analyst target price (which we use as a proxy for fair value), we can get an idea of the potential upside for each name, based on analyst projections.
All of the stocks mentioned below have an implied upside of more than 16% from current levels, based on Wall Street analysts' target prices.
Use this list as a starting point for your own analysis. The list has been sorted by discount to the average analyst target price. (Click here to access free, interactive tools to analyze these ideas.)
2. Activision Blizzard
3. Blue Coat Systems
4. NetScout Systems
5. Progress Software
6. Radiant Systems
7. Lawson Software
8. Monotype Imaging Holdings
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen does not own shares of any companies mentioned.