Securing the Future of Technology

Last year was another good one for stocks. America’s bull market extended into its sixth year as the S&P 500 closed at record highs 53 times over the course of 2014 and the Dow Jones Industrial Average rose above 18,000 for the first time. Despite geopolitical woes in Ukraine and Asia, plunging oil prices and a weak start to the year, stocks once again posted double-digit gains in the longest-running bull market since the 1990s.

This market is getting a bit long in the horns though, with the prevailing wisdom being that investors will have to be much more selective about what they’re buying in the new year. With valuations in many cases approaching new highs along with the markets and radical divergences developing not only between the developed and emerging markets, but between developed markets themselves, most of the easy gains have already been had.  As a result, we’ll have to pay more attention to less favored sectors and dig deeper to find investment opportunities.

One sector is expected to see newfound favor: technology.

The Nasdaq Composite Index is the only major index that hasn’t managed to reach new highs. Since tech stocks are generally seen as a bastion of pure growth and much of the focus in the current market has been on income, investors haven’t been keen to wade into the sector. There are a number of factors that make a 2015 tech boom much more likely, though.

The trade rag Computerworld conducts an annual survey of information technology executives to gauge their prospective tech spending each year. The latest results show that tech execs believe that corporate purse strings will loosen in 2015 as the U.S. economy continues to grow, with 43% of survey respondents saying that they expect their IT budgets to increase an average 13.1%. Much of that spending is expected to be geared towards security tools, consumer-oriented technology, information exchange and cloud computing. That’s expected to drive technology market growth of almost 7% over the course of the year.

Additionally, rising interest rates are also expected to make growth stocks more attractive. While the consensus is that the Fed’s benchmark won’t hit 2% for some time to come, any bump up in rates will make bonds more attractive and income-paying stocks less appealing. With technology spending expected to go up, but technology stock valuations low relative to most other sectors since they’re nowhere near new highs. Tech names will be the logical beneficiary of the push for growth, with a lot of upside potential.

What to Buy

For investors interested in profiting from the technology sector in 2015, our premium service Smart Tech Investor will be just the tool you need. It’s run by Jim Pearce, the Chief Investment Officer here at Investing Daily, Leo Boeckl, who has spent three decades in the technology industry, and Rob DeFrancesco, a seasoned tech sector analyst. They apply a proprietary screening system to the technology sector to identified under-valued, top performers.

One of the team’s top picks for 2015 is FireEye, an internet security firm serving major corporations and governments alike.

A recent study showed that some 40% of companies experienced a data breach over the past year, with a total of 559 confirmed breaches around the world in just the first half of 2014. Another 320 intrusions were reported in the third quarter alone, putting hundreds of millions of customer account records – including credit card numbers, social security numbers and a host of other data – at risk.

With tight rules requiring that sensitive data be protected from unauthorized use and perception problems around data breaches, data breaches can be expensive. For instance, when TJX Companies (NYSE: TJX) was hacked in 2007 and 46 million credit and debit card numbers were compromised, the fiasco cost the company more than $250 million in direct costs and lost sales. Who really wants to swipe their card at a business that can’t keep the number to itself, even as fewer and fewer consumers carry cash?

FireEye’s (NSDQ: FEYE) technology helps to protect businesses against those types of attacks, with its MVX virtual execution engine which identities malicious hacker attacks as they happen, allowing IT professionals to stop them in their tracks. Offering more than 20 different security products, the company is able to meet the needs of enterprises large and small and meet them well. FireEye reports a better than 90% renewal rate on its products, indicating that its customers are pretty pleased with its services.

It’s important to note that the company has been posting net losses since it went public in September 2013, but that’s not particularly unusual for newer technology companies. In the third quarter it posted a per-share loss of $0.83 according to GAAP measures and expects to lose a total of between $2.05 and $2.15 for the full-year.

Thankfully this is 2015, though, not the 1990s or even the early 2000s. FireEye isn’t selling some pie-in-the-sky idea with no real products to back it up. In fact, its suite of security solutions is widely acknowledged to best most – if not all – of its competitors. So while it may post net losses for a while longer, with revenue growth over 45% forecast for 2015, it will turn a profit sooner rather than later.

Even More Like It

FireEye is just one of STI’s top stocks and the service has a strong track record of picking winners.

The advisory just hit its one-year anniversary and the original ten stocks it recommended turned in an average total return of 28.1% over that year, outperforming the Nasdaq Index by 81%.

With 2015 likely to be known as the year of tech stocks, Smart Tech Investor is your ticket to success.