This was an eventful year in technology, and I believe 2006 will bring more big news. Outsourcing and music phones should explode (Apple could make a foray into this field), and Lucent could implode. Dell could embrace AMD, and video games should be the next big thing.
Merger mania: In the late 1990s, merger activity was generally driven by the urge to build empires (and of course some of that good old synergy stuff). But these days, most big tech companies simply aren't growing very quickly -- to me, that means we'll see an awful lot of M&A activity.
Investors with an extreme appetite for volatility might want to investigate M&A specialist Greenhill (GHL - commentary - Cramer's Take), which recently hired Dhiren Shah, the former head of Morgan Stanley's (MWD - commentary - Cramer's Take) powerhouse tech banking franchise.
Greenhill is my biggest miss of the year: I should have recommended it when it was below $40. It's not a back-up-the-truck name, but do some homework and wait for the right opportunity.
Slow growth, more outsourcing: I believe growth will slow for large companies over the next couple of years. To meet quarterly earnings expectations, they'll try to save money by outsourcing just about everything they can. My favorite play here is Cognizant Technology Solutions (CTSH - commentary - Cramer's Take), which has an almost absurd record of sequential revenue growth. Because it's based in New Jersey, we can analyze it just as easily as we would any other American company. However, this stock is very risky. If it pulls back below $45, I'd jump on it.
Video games to be loved again:Microsoft's (MSFT - commentary - Cramer's Take) Xbox 360 launch was an absolute mess, but sooner or later, sufficient production will come on line and hardware prices will fall. Plus, we'll see the launch of the PlayStation 3, which will be one of the hottest tech items of 2006. Video games will be touted as the next big thing in the mass media, but RealMoney readers already know that.
Market Commentary Using Amazon as a Tell on Tech Sales 12/21/2005 3:59 PM EST Amazon's list of top-selling electronics can be a useful leading indicator for tech stocks.
Market Commentary Calpine Lessons 12/21/2005 11:33 AM EST It's a classic story of how emotion can stand in the way of rational decisions.
Market Commentary Holding the Hidden Hand to New Year 12/21/2005 11:18 AM EST Big money will do anything to keep stocks up to year-end. Enjoy it; there's plenty of time to worry in January.
In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau performs stock analysis for ActionAlertsPLUS and Stocks Under $10. His market interests include consumer technology, retail, and small- and mid-cap financials. He appreciates your feedback; click here to send him an email.
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