Small Cap Tech Stocks to Jumpstart Your Portfolio
Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Traditionally, small cap stocks have a bad name among investors. In some cases, such negative scrutiny is justified, however, in the majority of cases, the stocks are often good Buy candidates. Let’s not forget that many a mega-cap company had initially started off as small cap outfits. There are various reasons which make small cap companies a bigger risk than more established companies. Such companies are generally more prone to fall victim to market whims as small caps are more sensitive to market upheavals. Another problem is related to transparency, since these stocks are not as widely covered as their bigger counterparts. However, these problems can be easily overcome if you, as an investor, are ready to carry out due diligence before taking a position. Interestingly, as the collapse of Lehman, Enron and other behemoths have shown us, the capital base of a company is no guarantee against its eventual failure.
On the other hand, Small cap stocks are generally priced cheaper than bigger companies. A low price to earnings ratio can indicate that you're getting the best bang for your buck. If you are careful choosing your small cap companies, then you may also be able to ride on its massive growth potential. So, while small cap stocks are relatively riskier, they are also capable of providing you with a matching reward. There is no fixed definition of small cap stock ( see 1, 2 and 3); in the technology sector, stocks with less than $5 billion in market capitalization can be included in this category. Keep reading for my pick of small cap tech companies which can provide a zing to your stock holding.
AOL (NYSE: AOL)
AOL was once a part of the hip stock crowd, but this web company’s heydays are long gone. After years and years of dismal performance, AOL got its groove back this year and appreciated over 115 percent. The company is in the long term process of reinventing itself under the guardianship of its CEO Tim Armstrong. So far, the process yielded good results and the performance is likely to continue into the coming year. The stock is available at an unbelievably low price earnings ratio of 2.85, which makes it a cheaper stock in comparison to peers. Currently, AOL is trading about 30 percent lower from its 52 weeks high price of $43.93 and thus offers an attractive entry point. Analysts are equally positive about the stock and analysts like Jefferies Group and Deutsche Bank recently gave it Buy ratings. Both firms also boosted their price target for the stock to $50. AOL is now looking to augment its revenue from online advertising.
CoreLogic (NYSE: CLGX)
This $2.65 billion company is engaged in the business of providing analytics service to financial institutions, mortgage originators and government. The stock is consistently rated positive by analysts including William Blair and Barclays Capital, which have rated it as Outperformer and Overweight respectively. After touching its lifetime low in mid-2011, the stock made a remarkable recovery in 2012 and appreciated 101 percent. It trades at price to earnings ratio of 28.54 and has strong institutional investor presence. CoreLogic’s 95 percent of capital is owned by institutions. The stock is in a bullish phase and is creeping closer to its 52 week high price of $29.50. It has also seen good insider purchasing with its CEO buying 5000 shares at $23.12 in late October. The company surpassed consensus estimates for its third quarter results and is likely to maintain the momentum. CoreLogic also recently expanded its share repurchase program to benefit its shareholders. With its solid performance and business model, the stock is definitely worth a consideration.
Cirrus Logic (NASDAQ: CRUS)
The company draws a major chunk of its revenue from Apple and at P/E ratio of 17.11, it is considerably cheaper than its peers such as Texas Instruments and Analog Devices. At its current price level, Cirrus Logic shows a 64 percent return this year, but the stock is about 40 percent down from its 52 week high price of $45.49. This $1.79 billion company is engaged in the semiconductor business and offers products like codecs, audio DSPs and amplifiers. Cirrus Logic also has a healthy share repurchase program and recently announced its plan to buy back $200 million worth of shares. Even before this program, the company had a strong repurchase history. The stock has a Buy recommendation from Needham & Company and Canaccord Genuity. Cirrus Logic offered strong results for its fiscal second quarter and provided an equally optimistic overview for the third quarter. Though, the company’s future is quite strongly linked to Apple, but the robust demand for Apple products ensures that Cirrus Logic will repeat its good performance in the coming year as well.
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