2010's Best Tech Stock: TIBCO Software

Deep value, meet high growth. And the bidding wars can begin in earnest.

Anders Bylund
Anders Bylund
Dec 17, 2009 at 12:00AM

You have to be a major-league tech addict to know anything about TIBCO Software (NASDAQ:TIBX). It's small, obscure, and way underfollowed.

That's part of what makes the stock so attractive that I'm calling it the best tech stock for 2010. When Mr. Market doesn't know what he's getting in a quality company like TIBCO, he is prone to violent mood swings and mistaken valuations. Buy when he's moody, and sell when prices are hitting sugar-rush highs at the other end of the pendulum.

What is TIBCO?
First, let me explain why TIBCO matters. The company sells enterprise middleware, the glue that binds a melange of separate applications into a cohesive IT infrastructure.

Gartner reports that the worldwide market for this type of software will grow from $15 billion in 2008 to $20 billion by 2013, which works out to 5.5% compound growth. Not bad. But TIBCO routinely grows faster than that, reporting 18% annual sales growth over the last five years. Analysts expect that pace to slow down a bit over the next five years, but TIBCO still grows faster than the market in which it works. That means taking market share from brand-name competitors like IBM (NYSE:IBM), Oracle (NASDAQ:ORCL), and SAP (NYSE:SAP).

It takes something special to do that. In TIBCO's case, it's a vendor-agnostic middleware platform that can mediate in real time between software from Oracle, Microsoft (NASDAQ:MSFT), and IBM -- as well as specialized applications developed in-house by the customer. TIBCO CEO Vivek Ranadive likes to call his company the Switzerland of the data center.

Why now?
TIBCO has impressed me for years, and I keep expecting the wider market to pick up on the little company's genius and steady execution. So far, that hasn't happened. For a while this summer, it looked like TIBCO was finally getting the respect it deserves, but the stock chart has turned south again for no obvious reason.

The stock is down 18% from a 52-week high set in October. When the company reports earnings next week, I fully expect the frown to turn upside down. TIBCO hasn't missed an earnings estimate since 2007, and that includes a large positive surprise at the start of the Panic of 2008. Pair that with proven growth, and you should get some serious gains out of the confluence of events.

But that hasn't happened. Measured by P/E ratios, price to sales, or especially the all-important price to cash flow metrics, TIBCO has been doing the lobster walk for years. It just keeps getting cheaper, even as business is getting better. That adds up to a buying opportunity, right here and right now.

Buyout fodder
An undervalued stock is only half of the TIBCO equation, though. Despite Dr. Ranadive's protestations, I believe that his company won't stay independent forever. There's blood in the water, and sharks like IBM and Oracle are working themselves into a feeding frenzy. TIBCO has something they want and can't easily make by themselves, or else TIBCO would be the competitor that loses market share. It's a small-cap business with major-league products and a 20-year history.

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If Oracle can overreach to get Sun Microsystems (NASDAQ:JAVA), there's no reason why Larry Ellison wouldn't plunk down a couple of billion for TIBCO. Heck, I would only be slightly surprised to see Cisco Systems (NASDAQ:CSCO) making a grab for TIBCO, just to perfect the IBM impersonation it's been working on lately.

Given how much TIBCO treasures its status as a truly independent middleware player, the company wouldn't sell itself for cheap. And there's a real chance of sparking a bidding war, like the short-lived tug-of-war IBM and Oracle played out over Sun.

Whether or not TIBCO ends up in some Big Brother's arms by the end of 2010, I'm convinced that the time is ripe for the bidding to begin -- and that will at least bring TIBCO out of today's relative obscurity. Mr. Market won't ignore this company much longer.

To see the full list of candidates for the Best Tech Stock for 2010, use the sidebar on the right or click here.