This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Playing defense with tech stocks

By Barry Randall

With 2014 off to a somewhat rocky start, experienced investors have understandably re-calibrated their tolerance for risk. After a great 2013 for many market participants, nobody wants to round-trip high-performing stocks back down to their early 2013 prices.

Regular readers know that we 'do tech' differently at Crabtree. We're disciplined, and pretty much ignore the headlines when it comes to managing the Crabtree Technology portfolio. Instead, we focus almost entirely on financial and operational performance. Cash flow, market share and a history of meeting the Street's and managements' own performance goals are really all that we believe matters most.

But we're certainly not oblivious to the amazing breakthroughs going on around us. And occasionally, our portfolio holdings benefit from being in front of some very cool trends.

Here are just some of the technology trends we're tracking, and where applicable, the Crabtree Technology portfolio hopefully will benefit from those those waves of innovation:

Mobile:Verizon (VZ), Turkcell (TKC), NTELOS (NTLS), Inteliquent (IQNT).

Mobile Payments: Green Dot (GDOT), Heartland Payment (HPY), Euronet Worldwide (EEFT).

Carbon Fiber /Composite Materials: Hexcel (HXL)

Social Media/Marketing: ReachLocal (RLOC)

Web-based Manufacturing and Logistics: Shutterfly (SFLY), Geeknet (GKNT)

Drones and Robotics

Self-driving Cars

Big Data: Cray

Artificial Vision

Broadband: MaxLinear (MXL), Marvell (MRVL), QLogic (GLGC)

3D Printing

Voice-over-IP: AudioCodes (AUDC), ShorTel (SHOR)

The 'Smart' Grid: EnerNOC (ENOC)

Electric Cars

Batteries

Software-as-a-Service: inContact (SAAS), XO Group (XOXO)

Customized Genetic Medicine

Cloud Computing

Bitcoin/Virtual Currencies

The Internet of Things

Solar Power

Mind you, we didn't look for trends first, then for companies addressing them. And as you can see, there are plenty of trends we aren't invested in. That's not because they aren't real and potentially lucrative to the players involved. Rather, it's simply because there are not many players that meet our high standards.

Take, for example, drones (specifically, unmanned aerial vehicles). Drones have proven to be extremely capable and cost-effective in a military context. I have no doubt that drones will also find uses in the civilian world, whether by delivering packages, helping with search-and-rescue missions and in pure research (flying into active volcanoes).

But there is only one pure-play public company, AeroVironment (AVAV) addressing this space and it is already under competitive threat from dozens of private companies. So while millions of dollars are being spent now and will be in the future, it's not investable while remaining true to our discipline.

So what is defensive about tech stocks? The fact that the trends listed above represent large secular trends, rather than cyclical ones. By 'secular,' we mean that the trend or technology shift is independent of the larger economy and stock market levels. A market downturn will affect all stocks, some more than others. But progress in these trend-setting areas will go on, whether the economy is strong or weak.

For example, because the cost per driven mile for an electric car is perhaps 1/3rd to 1/4th as expensive as for a standard gasoline-powered vehicle, a breakthrough in battery capacity and charging times would cause a massive and profitable shift, even during an economic recession. But we'll wait for public companies successfully looking for battery breakthroughs or other trends, rather than trying to guess the winners too early in the game.

Speaking of playing defense, the performance for the Crabtree Technology model during January was solid: While market indices were lower across the board, the model outperformed every relevant benchmark. The model declined 1.6% in the month, compared with a 2.8% drop for the Russell 2000 (RUT) benchmark and a 3.46% decline for the S&P 500 (SPX).

Our internal benchmark, the Merrill Lynch Technology 100 (MLO) fell 2.0% in January. The most widely held technology ETF, the State Street Global Advisors' Technology Select SPDR (XLK) fell 2.6%.

Please see the Crabtree Technology portfolio on Covestor for a more complete picture of the model's performance as well as important disclaimers.

DISCLAIMER: The investments discussed are held in client accounts as of January 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Barry Randall

Barry Randall

Crabtree Asset Management invests in growing technology companies. Barry Randall is the firm's founder and Chief Investment Officer. He has

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs