Next Stop For Growth: The Tech Mecca of Route 128

The standoff between the United States and North Korea resembles a reenactment of the Cuban Missile Crisis, performed by the Marx Brothers. It would all be funny, if nuclear weapons and the fate of the planet didn’t hang in the balance. Wall Street is biting its nails, as reflected by the seesawing performance of the markets.

Rising geopolitical tensions reached farcical levels this week, when the U.S. Navy aircraft carrier fleet that the White House had said was steaming toward the Korean peninsula was actually conducting exercises thousands of miles away in the Indian Ocean. President Trump called the strike force an “armada” (and we know how well that worked for Spain).

No wonder investors are nervous. A disappearing carrier fleet? That’s a trick even David Copperfield couldn’t pull off.

Foreign policy missteps, the Trumpcare fiasco, delayed tax reform, the unfolding Russian scandal, and the draconian federal budget blueprint are roiling the markets, but one sector appears to enjoy sustainable momentum: technology.

Below, I examine the inexorable forces driving tech higher. I also pinpoint one tech stock in particular that’s poised for market-beating gains, regardless of the market’s excessive valuations and worsening dangers. You might be surprised to learn that this tech star is little-known and based in the Northeast, not California.

Saber-rattling abroad and political upheaval at home have dominated America’s front pages all year. And yet, through it all, the tech sector has been on a steady roll. The benchmark Technology Select Sector Index (NYSE: XLK) is up about 9.1% year to date, compared to a 4.4% gain for the S&P 500.

Igor Greenwald, chief investment strategist of Breakthrough Tech Profits, explains the tailwinds that are propelling the tech sector:

“Technology investments continue to consume a rising share of corporate budgets because they tend to have the quickest payoffs. Replacing costly humans with software is pretty much the lowest-hanging fruit for managers looking to lift the profit margin.”

Another favorable factor is Trump’s promise to make it easier for tech firms to repatriate cash hoards that are parked overseas. Tech companies are likely to use this cash to fund merger and acquisition activity and organic growth. To be sure, comprehensive tax reform looks increasingly iffy, as daily crises continually impede major Republican priorities. But a generous tax repatriation policy is among the few narrowly focused items that enjoy sufficient bipartisan support to become law.

The view from Route 128…

I was born, raised and educated within the environs of Boston, allowing me to witness first hand the explosive growth of Route 128, the area’s famed state highway that’s home to scores of technology companies ranging in size from entrepreneurial start-ups to mega-cap titans.

The broader market faces many landmines in the year ahead, as stocks remain overvalued and analysts call for a long-deferred correction. But one stock combines small-cap firepower with the momentum of technology demand: Progress Software (NSDQ: PRGS), located in Bedford, Massachusetts.

Progress is headquartered within the Route 128 technology corridor, the Silicon Valley of the East and locus of world-class academic centers such as MIT, Harvard, Yale, Brown, Tufts, and Amherst. Proximity to military contractors and their war chests of Pentagon funding is another catalyst for the region’s growth. The Route 128 technology community is the second biggest in the U.S. in terms of venture funds committed, behind only Silicon Valley.

As Igor Greenwald points out, cash-rich corporations are making the IT investments that they’ve been putting off in previous quarters. Progress provides cloud-based and software-as-a-service data solutions for companies in several industries. The company’s client roster is diverse and global; its products and technology are used at over 60,000 organizations in 140 countries including 90% of the Fortune 500.

With a market cap of $1.42 billion, Progress is small enough to confer the potential of outsized growth that can elude its larger rivals such as Microsoft (NSDQ: MSFT), IBM (NYSE: IBM), Oracle (NYSE: ORCL), and Cisco Systems (NSDQ: CSCO). But Progress is large enough to keep its footing if the stock market stumbles, which puts it in a “sweet spot” for technology sector growth.

Progress Software last week released robust operating results for its first quarter of fiscal 2017. The company reported earnings per share (EPS) of 34 cents for the quarter, topping the consensus estimate of 26 cents. During the same quarter in the previous year, the company reported EPS of 27 cents.

The consensus estimate of analysts is that Progress Software’s earnings growth will reach 10% over the next five years on an annualized basis. If you’re seeking a tech stock that isn’t among the usual suspects, look to the country’s other coast.

Got a question about technology stocks or any other investments? Send me an email: — John Persinos

This tiny tech stock is about to break out…

There’s another technology small-cap poised for big gains, but this one is flying completely under Wall Street’s radar. With shares trading at about $4, the stock never gets mentioned on CNBC.

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