Taking a Look at Tech Upstarts

With a mostly humdrum earnings season wrapped up, it's instructive to take a look beyond the usual tech large-caps -- by their sheer size, forced to depend on the larger fortunes of the economy -- to the small fry that are managing to squeeze out growth.

After all, the leading tech names couldn't offer much for investors anxious for a pickup in demand. Once again, IBM(IBM Quote) leaned on currency gains for growth, while Taiwan Semi(TSM Quote), the massive foundry, said the chip industry is likely to grow well below Wall Street expectations next year.

But in the small-cap world -- an admittedly volatile one -- company fortunes aren't quite so tied to an uncertain economy, and it's easier to scout out an overlooked but promising name. With that in mind, below are four tech-stock picks with market caps measured in the millions, not billions. By coincidence, three are plays on health care -- a fact that underscores how biotech advances are now catching the eye of investors who once looked to technology hardware for their growth fix.

Paul McEntire, manager for the (TPFQX Quote)Marketocracy Technology Plus fund, says most semiconductor plays have lately looked uninviting, given price pressure and weak PC spending (though there are a few notable chip exceptions, including high-margin Linear Technologies(LLTC Quote), in which he has a holding).

But over the past couple of years, he's found some promising growth stories in health care technology. "We tend to be somewhat more focused on the longer term and I felt like the demographics for companies providing services in health care were pretty encouraging, not only in our own population but as the rest of the world develops," says McEntire.

Getting Healthy

On the health care side, two of his favorite under-the-radar picks are Vital Images(VTAL Quote) and Cepheid(CPHD Quote).

Vital Images, a medical software play, uses medical scanners to generate three-dimensional images of human innards; it has struck a deal to include its software on medical systems from Toshiba. In the latest quarter the company upped its profit to $666,000, up from last year's $201,000, while sales jumped 54% (to a still-diminutive $7.5 million).