Tech Stocks to Profit From Commodity Shock

By Tom Taulli

NEW YORK ( TheStreet) -- Commodities prices have surged, sending a shock wave through companies that rely on them, including manufacturers, apparel makers and food producers.

The commodities boom has been great for investors. (Read Can October's Best-Performing Commodities Continue Their Run?) However, commodity-dependent companies' profit margins are being squeezed, pressuring stock prices.

As a result, companies are trying to use technologies to improve their cost structures and streamline operations -- supply-chain management, better sourcing and enhanced pricing strategies. And companies that can provide those services stand to profit. Here's a look at three:

1. PROS Holdings ( PRO): This company develops enterprise software that allows large companies to optimize their pricing. That involves processing huge amounts of data in real-time and then applying complex formulas. The upshot is that PROS technology can help companies not only with setting the best prices but also when to give discounts, increase shipping charges or provide promotions.

Even a small increase in prices -- if done correctly -- can have a major impact on a company's profits. This is especially important in the current economic environment, where it can be difficult to pass on price increases to consumers.

While 2009 was a difficult year for PROS, the fundamentals have been much better this year. The company has taken strides to make its software easier to implement, which is a key for getting new customers.

Despite all this, PROS still is showing declining revenue (according to its latest quarterly report) and is unprofitable. Because of the large expense of its software, it will likely take some time to get more traction.

2. Ariba ( ARBA): This company develops software for so-called spend management. That includes help with sourcing (the network is over 180,000 suppliers), spend analysis, electronic invoicing, supplier monitoring and contract management. Ariba has more than 1,000 customers, which include half the Fortune 500.

But Ariba is not only about software. The company also has a team of domain experts who consult with customers to devise cost-effective strategies.

As for the financials, Ariba is growing at a nice rate. The company posted revenue of $95.1 million in the most recent quarter, up from $84.3 million in the same period a year earlier. Cash flow from operations was $12.8 million.

3. Echo Global Logistics ( ECHO): The company has a software platform that helps companies' supply-chain costs, with a focus on freight. Echo's system has a network of over 24,000 transportation providers and uses complex data analysis to find the most efficient option for its customers. The software also features automation of carrier management, routing compliance, freight bill audit and performance reporting. The result is that customers can realize cost savings of anywhere from 5% to 15%. Some companies have even eliminated their internal logistics departments, thanks to the software.

Echo has been growing at a sizzling rate. The company has been aggressive with recruiting sales people and has continued to innovate its technology offering. In the latest quarter, revenue rose to $113.5 million, up 62% from a year earlier.

Action to take: All three companies stand to benefit from the commodity shock. However, Ariba and PROS shares have already had nice gains in the past few months.

But as for Echo, the stock price dropped 18% when its latest quarterly report was released. The problem was that the company was seeing some softening of customer demand, yet growth should still be fairly strong. And with the stock trading at less than 0.8 times revenue, the current valuation looks attractive.

This article originally appeared on StreetAuthority. To read more articles from Tom Taulli on StreetAuthority, you can visit this link.

Disclosure: At the time of publication, Tom Taulli owned no positions in the stocksmentioned.

StreetAuthority is a financial-research and publishing company with offices in Austin, Texas, and Gaithersburg, Maryland. The company aims to help individual investors earn above-average profits by providing a source of independent and unbiased investing ideas.

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