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The Top Tech Investing Trends for 2014: Part 2

Yesterday we looked at two powerful trends—the mobile device explosion and the growth of cloud computing—that are bound to shape the tech sector in 2014, and how you can profit. (Click here to read that article.) Below, we examine two more.

2014 Tech Trend #3: Big Data = Big Opportunity

As we noted in part 1, global IT spending is expected to rise 5.0% next year, to $2.1 trillion, according to technology research firm IDC’s latest forecast. Over $14 billion of that spending will be devoted to big data applications, up 30% from 2013.

Big data refers to a collection of information so large it’s difficult to process with the technology traditionally used for the job. As a result, we need a new set of tools—including analytics software—to get the most out of it.

The world generates about 2.5 exabytes of data daily (1 exabyte = 1 billion gigabytes), including everything from tweets to credit card purchases. Moreover, much of that data is unstructured, making it harder to analyze than information that’s centrally stored.

For companies, the opportunity lies in being able to access and compare this data, which can unlock new ways to improve efficiency, head off problems and learn more about their customers’ buying habits. According to McKinsey & Company, a retailer using analytics to sift through its data could increase its operating margin by over 60%.

There are a number of companies operating in the big data space, including software giant Oracle (NYSE: ORCL) and data-storage provider NetApp (NasdaqGS: NTAP), as well as EMC Corp. (NYSE: EMC), Teradata (NYSE: TDC) and a host of others.

One name that stands out from the pack is industrial giant General Electric (NYSE: GE). In late 2011, GE announced that it was investing $1 billion to set up a software facility in San Ramon, California, with initial plans to hire up to 400 programmers to work on what it calls the “industrial Internet.”

That bet has paid off. Thanks to strong sales of its analytical products and services, GE now plans to double the number of programmers working at the San Ramon facility.

As you can probably guess from the “industrial Internet” label, GE’s big data offerings are aimed at making industrial processes more efficient. They do this by adding sensors to equipment and monitoring its performance remotely.

In October, GE rolled out 14 new products for clients in industries ranging from aviation to health care and oil and gas production. One of these is its Flight Efficiency Services software, which collects real-time data from aircraft and uses it to help airlines improve fuel efficiency and make better use of their fleets. Brazil’s GOL Airlines, which is using the system, predicts that it will result in $90 million of savings over the next five years.

“We’re way ahead of where we thought we’d be in terms of offerings, and we’re very happy with the revenues, as well,” Bill Ruh, vice-president of GE’s software and analytics center, said in an October 9, 2013, Bloomberg article. “We’ve learned we can do this, and it’s turning out to be better than we thought.”

GE stands to benefit from a number of other trends, as well. For example, as Investing Daily analyst Brian O’Connell reported in a September 16 article, the company has signed on to help deliver 5,000 megawatts of new, affordable energy in Tanzania and Ghana. It’s an example of GE’s strong potential to attract rising power investments in developing areas like sub-Saharan Africa, where two-thirds of the population is without electricity.

The stock has performed well year-to-date, rising 26.6%. GE also pays dividends at annual rate of $0.76 a share, for a 2.86% yield.

2014 Tech Trend #4: It All Comes Back to Security

At the heart of all the trends we’ve examined over the past couple days is data security.

With more users accessing networks through the cloud and mobile devices, as well as analytics software gathering data from ever-more disparate sources, protection from viruses and other online threats has never been more important.

According to IBM (NYSE: IBM), 41% of companies plan to increase their spending on computer security in 2014. The U.S. government, too, is boosting its investments in this area: according to IDC Government Insights, overall government IT security spending will rise to over $7.3 billion in 2017 from $5.9 billion in 2012.

The two largest players in the computer security market are Symantec (NasdaqGS: SYMC) and McAfee Corp. In 2012, Symantec held the top spot, with 19.6% of the market, followed by McAfee—owned by Intel Corp. (NYSE: INTC)—at 8.8%.

We’ve written previously about Symantec’s considerable advantages in the computer-security realm, including its well-established line of Norton Antivirus products (see “Symantec’s Synergy in Cybersecurity,” July 23, 2013).

However, Intel also stands to gain as companies and individuals grow more concerned about data security on all platforms, including mobile devices.

Intel—whose main business is making computer chips—is a less-direct play on computer security than Symantec, and it has been slower to adapt to the shift from PCs to mobile devices.

However, it continues to boost its R&D spending, including devoting more resources to mobile growth. It spent a total of $10.2 billion on research and development in 2012 (or about 19% of its total revenue), up from $8.4 billion in 2011. Through the first three quarters of 2013, it has devoted $7.8 billion to R&D.

The company should benefit from new products built around its Atom Z3000 Bay Trail chips, which are designed to be highly energy efficient and are aimed at everything from seven-inch tablets to larger, two-in-one PCs, such as detachable tablet/PC hybrids.

These chips also offer improved security features and support for McAfee’s DeepSAFE technology, which operates outside the operating system to protect from phishing attacks and keep data secure.

Intel acquired McAfee in 2010 in a cash deal worth $7.7 billion. It offers a number of mobile security products, including McAfee Mobile Security Smartphone Edition 2014. According to the company, its applications now protect over 150 million mobile devices worldwide. That number should continue to rise with greater adoption of smartphones.

The stock has gained 18.8% in the past year and trades at 12.9 times Intel’s forecast 2014 earnings of $1.89 a share. It also pays an attractive dividend: the annual rate of $0.90 a share yields 3.69%.

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