According to a senior executive at IBM, buyouts of midsized software companies for $100 million to $300 million would enable IBM to add $20 billion in earnings within three years -- and that's just what they plan to do.
So far the company has made nearly 50 acquisitions since 2006, more than half of which have been in business-data analysis.
Now IBM is on the hunt to fuel growth in its $22.5 billion software business with smaller technology companies. Specifically, the company is looking for businesses worth under $10 billion that show the potential to increase their earnings rate two to three times within as many years. (via Bloomberg)
This initiative comes after IBM's achievement last week in surpassing Microsoft "to become the world's second-most valuable technology company after Apple." The company sees the acquisitions as an essential measure to continue increasing their market power.
So, IBM seems to think there's value in the small-cap, high-growth tech sector. But how are you going to find the hottest companies that fit this description?
For ideas, we collected data on institutional money flows, and identified a list of small-cap tech stocks that have seen significant institutional buying during the current quarter. All of the stocks mentioned below have market caps between $100M-$300M and have projected earnings-per-share growth above 25%.
Big money managers seem to think these small-cap tech stocks have a lot of potential, and IBM has expressed an interest in making some acquisitions in this space.
Should any of these names be on your watchlist? Use this list as a starting point for your own analysis.
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Ness Technologies
2. Alaska Communications Systems Group
4. hiSoft Technology International
8. Mitek Systems
9. The KEYW Holding
10. Advanced Analogic Technologies
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.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Data sourced from Fidelity.