These Stocks Beat Biotech Stocks

On some market days, the headlines are filled with news of individual stocks whose shares have soared over the past year. With stocks that sometimes triple overnight, the biotechnology sector has always received plenty of attention from investors. But I can tell you tales of investments from another sector beating the pants off biotech stocks ... and where you can find out more about them.

Would the real hot stocks please come forward?
Using Motley Fool CAPS, investors can get detailed information and community intelligence on not only individual stocks, but also entire sectors, regions, and industries.

Any of the 5,300 rated stocks profiled in CAPS can be "tagged" with a descriptor that groups the company with others that share a certain quality, such as a country of origin, a sector, or an end product. A single click on the Biotech tag pulls up a list of a whopping 291 stocks that, as a group, have risen a meager 3.8% in the past year.

Using the tags in CAPS can lead you to a group of stocks that have outpaced the return of stocks in the Biotech group, as well as the broader market -- Diversified Electronics. The 77 companies included under this tag have averaged an even more impressive 13.7% return in the past year. Granted, this group is much smaller, and the reasons behind the growth in this sector come from different sources. But CAPS can help us dig under the surface to find potential opportunities in each area.

From macro to micro
You can sort tag groups quickly by their CAPS ratings, denoted by one to five stars, with five being the best. Then you can view individual companies to show details of just who -- from Wall Street to Main Street -- is bullish or bearish on the company and why. For instance, here are a few of the stocks in the Biotech group.

Now, here's a sampling of diversified electronics stocks that -- judging by interest in the CAPS community -- investors may want to consider:

While biotech companies are out to develop potential cures for what ails society, one electronics firm, Motley Fool Stock Advisor recommendation Dolby Labs, is out to cure poor quality in audio and video entertainment experiences. Dolby Labs was founded by Ray Dolby in 1965 to help eliminate the background hiss on magnetic tape recordings. Today, Dolby noise reduction and audio enhancement technology is incorporated into a wide range of consumer and commercial electronics equipment from more than 500 manufacturers.

Dolby recently announced the acquisition of Coding Technologies, a Swedish company that develops compression technologies for mobile devices, digital broadcasting, and Internet media. In addition to this further expansion into audio creation, transmission, and playback, Dolby is snapping up technology to enhance the visual entertainment experience as well. To this end, Dolby acquired Brightside Technologies, a company designing image technology to improve video playback on LED-backlit LCD television sets.

As the de facto audio decoding standard on many audio/video products, Dolby earns high-margin revenue from licensing fees, which accounted for 80% of its $482 million in revenue in fiscal 2007. A cash machine, nearly 30% of this revenue fell to the bottom line, yielding $143 million in net income for the year.

With its solid financial performance to date, many CAPS investors remain bullish about Dolby. The progression of consumer electronics devices toward a high-definition (HD) standard is often mentioned as a big plus, as the company has already secured a place for its technology in the HD standards. Even though it trades at a forward earnings multiple around 30, more than 97% of investors rating the company believe it will beat the market going forward.

Before you buy ...
Of course, investors don't want to be looking in the rearview mirror to find out where they should be investing now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify macroeconomic trends that may significantly affect investments.

Of course, no matter where investing ideas come from, investors should always perform their own due diligence rather than following crowds or individual recommendations.