Technology investors are always on the lookout for the next big thing -- the next PC, the next cell phone, the next Internet -- that will send revenue and earnings soaring like rockets.

But in 2004, the search for the next big thing isn't just of interest to technology investors. Without a big thing from the tech sector, or at least several bigger-than-a-breadbox things, the entire stock market is likely to stall in 2004.

That's why I've put together a list of five possible next big things in technology for 2004, and picked 10 stocks that could soar with those trends. If they do, this stock market rally has a good chance of powering ahead in 2004. If together they don't add up to much, stocks will face tough going in the year ahead.

Read my nominees, throw in your own and then do the math. Do these trends add up to enough unanticipated earnings power to drive stock prices further upward from here?

Techs Must Power Any Real Rally

Why do I say that strength of the next big things in technology is so critical to the market as a whole in 2004?

Before Santa arrived for his traditional rally, this stock market was looking very tired. Sure, the Dow Jones Industrial Average and other indexes were going up. But the sectors that had led the rally since it started last March had faltered. Technology, financial and retail stocks were under such steady selling pressure that in technical rankings of sector strength, like that kept by Phillip Erlanger of Erlanger Squeeze Play, these groups had dropped from the head of the pack to its tail.

On Dec. 19, financial stocks, technology-service stocks, electronic-technology stocks, health-technology stocks and retail stocks were five of the six weakest groups of the 18 that Erlanger tracks.

10 Stocks Set to Profit From Tech's Next Five Big Things
These names look like good bets for 2004
Company Industry Company Industry
Cisco Systems (CSCO:Nasdaq) Networking equipment SanDisk (SNDK:Nasdaq) Flash memory/data storage devices
Dell (DELL:Nasdaq) Personal computers Sycamore Networks (SCMR:Nasdaq) Networking equipment
Intel (INTC:Nasdaq) Semiconductors Symbol Technologies (SBL:NYSE) Wireless networking, information systems
Manugistics (MANU:Nasdaq) Pricing and supply chain software Western Digital (WDC:NYSE) Disk drives
Netegrity (NETE:Nasdaq) Security software Zebra Technologies (ZBRA:Nasdaq) Bar code and specialty label printing; radio frequency identification tracking
Source: MSN Money

It's especially critical that technology stocks start to show some life again in 2004. The retail sector is probably headed for its usual postholiday shopping season slump. The financials are going to be facing stiff headwinds all year from a slowdown in the refinancing boom and the fears of higher interest rates in the second half of the year. That pretty much leaves it up to technology stocks to provide the leadership that any sustainable rally needs.

Which brings me to the need for next big things in technology. You see, the rally that drove the technology-laden Nasdaq Composite index from its March 11 closing low of 1271.47 to its closing high of 1989.82 on Dec. 1 has pretty much priced business as usual into the technology sector.

With year-to-date returns of 68% for Applied Materials ( AMAT), 82% for Cisco Systems ( CSCO - Get Report), 97% for Intel ( INTC - Get Report) and 91% for Texas Instruments ( TXN), stock prices have anticipated much of the cyclical recovery off the bottom and a return to revenue growth as usual.

For technology stocks to start moving up again, for them to reassert their role as market leaders and for them to put the juice back in this rally, they will have to deliver the unexpected: the next big thing.

Here are my five candidates for the tech sector's next big things of 2004.

Personal Manipulation of Digital Content (PMDC)

Today, digital content is mostly preformatted for consumers by content providers. Consumers are able to access the content by using a variety of products -- digital cameras, Apple Computer's ( AAPL) iPod and TiVo ( TIVO), for instance. Increasingly, consumers want to exercise more control over that content, and that's where PMDCs come in. PMDC is divided among hundreds of content and device makers, and none of these individually qualifies as a next big thing.

But PMDC requires storage, tons and tons of storage, in new, inexpensive, smaller, easy-to-use devices. PMDC has already transformed the disk-drive industry from a commodity producer of storage for PC makers into cutting-edge technology companies that realize they've got immense new markets open to them if they can make their drives small and cheap enough to fit in a cable TV set-top box, for example.

The same transformation is sweeping through companies that make flash memory, a smaller and cheaper form of memory that's used in digital cameras. I think we're headed to a world that puts localized storage everywhere so that consumers can reformat content and then store that personalized content near at hand.

In disk drives, companies to look at include Western Digital ( WDC - Get Report), Seagate Technology ( STX) and Maxtor .

In flash memory, companies to check out are SanDisk ( SNDK) and Korea's Samsung Electronics ( SSNLF), which has clearly taken the flash memory momentum away from Intel. In these two groups, I prefer Western Digital and SanDisk on valuation and corporate governance issues.

The Next Generation of the Internet

Someday soon we may know who actually won the competition to build the major pieces of the precursor to the next generation of the Internet. Just as the current Internet grew out of a government network built for the Defense Department's advanced research arm, the next generation, officially the Global Information Grid Bandwidth Expansion project, is being built for the Defense Information Systems Agency with an equipment budget of about $900 million over two years.

A contract of that size would itself be a prize to struggling equipment makers such as Sycamore Networks ( SCMR) and Ciena ( CIEN) among the contract winners. Of these, I like Cisco and Sycamore Networks.

Convergence With a Vengeance

Yeah, yeah, they've been talking about convergence for years -- the magic moment when PCs are TVs and TVs are PCs and the world of consumer electronics and personal computers meshes. But it's finally here. Really. And it is a big thing, just as we've been promised all along.

What convinced me was Intel's announcement that it was planning a chip for large-screen, high-definition television sets. (The official unveiling apparently is scheduled for Jan. 8 when the Consumer Electronics Show opens in Las Vegas.) The chip would use liquid crystal on silicon technology to produce a much sharper picture than current technologies, analysts outside Intel say. Whatever. The important thing is that Intel's huge manufacturing efficiencies will drive the price of big TV sets, the ones that go up to 60 inches and sell for $3,000 to $10,000, down and down.

Big screen sets could drop to $2,000 by next Christmas, according to market researchers Envisioneering Group. All this is bad news for companies such as Sony ( SNE) that still insist on making the guts that go into their own consumer electronics. But it's great news for companies such as Dell Computer ( DELL) that have mastered the art of using what I call other people's components to drive down the costs of their own finished goods. Dell already sells a 30-inch liquid crystal display TV for $3,000. I can't wait to see what the company can do once it gets really serious about this business. To ride this next big thing, I'd pick Intel and Dell Computer.

Do You Speak RFID?

Get used to it. This is the tech acronym most likely to get big media play in 2004. It stands for Radio Frequency Identification Tracking, and with Wal-Mart ( WMT), the Pentagon, Visa and American Express ( AXP) behind it, the technology will generate a lot of excitement in 2004.

The idea is simple: A tiny radio transmitter embedded in a tag printed on a product (much like today's bar code) or in a credit card or a cell phone transmits a radio signal that allows a retailer to charge your credit card without a swipe, to track the location of any product as it makes its way from plant to store to consumer, to keep even more detailed records on who buys what and where and when.

The Pentagon has said that its top 100 suppliers -- that's out of 43,000, mind you -- will have to implement RFID by January 2005. Wal-Mart is rolling out its program at about the same pace. Visa and American Express have pilot programs going to test the technology. Private companies such as Alien Technology of Morgan Hill, Calif., and Matrics, Inc. of Columbia, Md., both working with the Pentagon, are hot among venture capitalists.

Four names of public companies to check out: Zebra Technologies ( ZBRA - Get Report) and Printronix both bar-code printer makers that are pushing into RFID printing; Checkpoint Systems ( CKP), a maker of integrated systems for retail security systems; and Symbol Technologies , a maker of the wireless networks needed to collect data from RFID tags.

My preference is for Zebra Technologies and Symbol Technologies, but it's slight and I'd watch valuations carefully among RFID companies. This could get enough hype to drive stocks to wildly inflated prices.

If You Collect the Data, You Must Manage the Data

RFID is just one example of a trend that is creating more and more data on more and more products and people. The challenge is managing that data so that authorized users can extract useful information in a timely manner while keeping the wrong people from accessing or appropriating the data. On the data-management end, that means plenty of work for logistics companies such as Manugistics ( MANU - Get Report), credit card and debit card transaction leader First Data ( FDC) and consumer-credit data collector Equifax ( EFX).

On the security and privacy side? Well, the field is wide open. Consumers increasingly demand some assurance that the information collected on them remains private. And every day seems to bring a new privacy challenge, such as preventing eavesdroppers from stealing data moving on RFID and other wireless networks.

These tasks aren't trivial: Keeping data out of the wrong hands and putting it in the right hands -- especially when the definitions of right and wrong change with each data type and with context -- is a computational nightmare. Some companies to check out in the area are Netegrity ( NETE - Get Report), Entrust , RSA Security and, of course, the big gorilla, IBM ( IBM).

My preference here: Manugistics and Netegrity. At least, those are the stocks I'd start my research with.

Does this all add up to enough of a next big thing to put technology shares back in the lead?

I think the next big things may be strong enough to lift the shares of the tech stocks I've named here. But the market as a whole needs help from a wider group of technology companies. I'd be more comfortable predicting a good year in 2004, however, if so many longtime leaders such as Hewlett-Packard ( HPQ), Oracle ( ORCL) and Sun Microsystems ( SUNW) didn't continue to struggle.

Changes to Jubak's Picks

Sell R.R. Donnelley. Shares of R.R. Donnelley ( DNY) have bounced back from the Nov. 9 news that the company would acquire printer Moore Wallace for $2.8 million in stock.

The shares continue to move ahead slowly, but the stock is near the top of its recent price range. I'll take my profits here, rather than waiting for the shares to hit my March 2004 target of $30, now about 6% away. I'm selling with a 13% gain since I added the shares to Jubak's Picks on May 30, 2003. (Full disclosure: I'll be selling my personal position in R. R. Donnelley two days after this column is posted.)

At the time of publication, Jim Jubak owned or controlled shares in R.R. Donnelley and Western Digital. He does not own short positions in any stock mentioned in this column. Email Jim Jubak at