Which Outperforming Tech Stocks Should You Watch as Tapering Ramps Up?

James Dennin, Kapitall: We found 5 outperforming tech stocks in the event that increased tapering benefits the sector. 

The Federal Reserve remains committed to tapering its monthly debt purchases, sending waves of positivity across markets. One sector in particular that is expected to benefit from tapering is technology, as these stocks can perform disproportionately well when the economy is getting stronger, or even just perceived to be.

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This seems like a reasonable expectation to have: if people think the future will be better, they are more likely to be comfortable making bets on that future. Financial services stocks work in a similar way, because they profit the most when everyone is making money.

Investing Ideas

We decided to find investing opportunities based on the Fed’s tapering policies, and their impact on tech stocks. To develop this screen, we started with a universe of tech stocks listed on the NASDAQ, and removed all companies not based in the U.S.

And since more nimble companies benefit disproportionately from an inflationary environment, we narrowed our list to only include small and mid cap stocks, with a market capitalization between $100 million and $2 billion. Ideally, these would also be companies producing technologies that aren't familiar to most consumers yet.

Next we limited our results based on price. Since institutional investors rarely consider stocks that are priced below $10 a share, we decided to take a page out of their playbook and excluded any stocks below that price point. But we also wanted a list of stocks that aren't too expensive, so we removed any trading above $50.

With these basic parameters in mind, we turned our attention growth metrics. We looked for stocks with exceptionally high performance, of over 100% for the year in 2013. But it was a stellar year for the stock market as a whole, and this still left us with a larger list – 21 companies.

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