MILLBURN, N.J. (Stockpickr) -- Apple (AAPL) - Get Report seems to be one of those rare companies and stocks that come around once in a generation, whose fundamental metrics more than justify the stock's performance. Intel (INTC) - Get Report was that stock in the 1990s.
So I'm curious: Which stock is next? Are there other tech companies that have even better metrics than Apple and could be up-and-comers?
To find these stocks, I selected two key metrics on which I place a high degree of importance when evaluating a stock from a fundamental perspective: return on equity and gross margins. The companies I found have ROE greater than Apple's 45.6% and gross margins greater than Apple's 44.7%.
is an investment technology research, advisory and consulting company. Established in 1979, the company has grown along with the greatest technological boom in history. Gartner's research analysts not only help their end user clientele but also have an impact on Wall Street as an independent research provider.
Revenue for the company grows in the low double-digit percentages, but given Gartner's business model as a service provider, its high gross margin rate converts revenue growth into even higher earnings growth. Earnings per share are expected to rise at a percentage rate in the mid-20s in 2012 and 2013.
With the stock selling at 25 times current year's earnings and a PEG ratio of just 1.06, Garner makes for a compelling investment.
is a specialized semiconductor company that produces analog integrated circuitry for a wide range of end users in industries such as telecommunications, networking, computers and factory automation. Revenue for the fiscal year ended June 2011 rose 27%.
The company is making a strategic decision to reduce its exposure to the consumer and cell-phone markets as those customers are becoming less reliant on analog-based technology and increasing exposure to the more rapidly growing industries in the global economy such as industrial, automotive, communication infrastructure and military. While this strategy may yield some short-term consequences, in the long term, the company will benefit. The market has already priced these decisions into the company's stock price.
In addition, Linear Technology pays an above-market-average dividend of 3%.
Linear Technology was also featured recently in "
, known by many on Wall Street by its nickname "Big Blue," was regarded by the last two generations as a computer hardware company. It made money for investors for decades by manufacturing hardware and software for large mainframe computers.
Then, in the 1980s, IBM pioneered the personal computer. Its big mistake was focusing on the hardware and allowing
to engineer and control the operating system. Now IBM is focused entirely on information technology consulting, systems integration and software.
The stock is trading at an all-time high and is the largest constituent stock in the
Dow Jones Industrial Average
. However, given that IBM is a service business, it is able to leverage low single-digit sales growth with its high gross margins into low double-digit percentage earnings growth.
IBM shows up on recent lists of
, often referred to as the
of China, is the largest Chinese-language search engine in the world. Despite a slowing of the economy in China to a low rate of growth, Baidu is attracting more users and clients at a fast pace.
This fast-growing company is expected to increase revenues by 59% in 2012 and 42% in 2013. Earnings are expected to grow 53% in 2012 and 41% in 2013. Earnings surpassed analysts' estimates for each of the last four quarters.
The company has a virtual monopoly in China as Google has its share of operating and legal woes in that nation. The stock is trading 10% below its 52-week high, likely due to the China slowdown concerns. However, I believe that Baidu will eclipse that high of $165.96 on its way to $200.
Baidu is one of
and also shows up in
as of the most recently reported period.
is a fabless semiconductor company that specializes in analog and mixed-signal integrated circuits. Applications for Cirrus Logic's products span audio, industrial and energy end users. The audio technologies are used in MP3 players, smartphones, laptops and tablets. All of these are growing markets.
Revenue is expected to grow about 15% for the fiscal year ended March 2012 and then 12% in the following year. Earnings are expected to increase nearly 19% in the next year. The company carries no debt and has cash and short term investments of about $3.20 per share
. Some people have speculated that Apple could use some of its cash to buy this $1.65 billion company. Whether or not that will happens remains to be seen, but the speculation alone indicates that there is unlocked value in shares of Cirrus Logic.
Cirrus shows up on a list of
develops and deploys technological solution used in the clinical trial process and supply trial management by pharmaceutical, biotechnology and medical device companies. Revenue is expected to grow by 15% in 2012 and 13% in 2013.
The company earned $1.60 on a GAAP basis and $1.51 on a non-GAAP basis in 2011, which included a litigation settlement of $6.3 million and a tax benefit of about $19.0 million. When I factor out those special items and apply a normalized tax rate of 40%, the company earned about 40 cents per share in 2011.
Analysts expect MDSO to earn $1.12 in 2012 and in $1.42 in 2013. When I look forward to the company's normalized earnings, the stock has ample growth to warrant a PE of around 25 to 30 times earnings.
-- Written by Scott Rothbort in Millburn, N.J.
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At the time of publication, Rothbort was long GOOG, AAPL and INTC stock and AAPL calls, although positions can change at any time.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of
, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of
, an educational social networking site; and, publisher of
. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.
Mr. Rothbort is a regular contributor to
TheStreet.com's RealMoney Silver
website and has frequently appeared as a professional guest on
Fox Business Network
and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.
Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.
Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.