3 Stocks to Indulge Your Bull Market Euphoria

Nikhil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The market has been doing fairly well lately. With the S&P 500 up 23% in the last year, it’s easy for investors to start feeling pretty good about themselves. Of course, now is the time to pay the most attention to the risks in the market. Europe’s economy is still throwing a tantrum, Syria is threatening to create a surge in oil prices which could have mixed effects on the market, and of course if the Fed stops their easing policies, the market could weaken in the future. The market also looks pretty high right now by other metrics. Corporate profit margins seem unsustainably high, and Market Cap/GNP is at 108% (Warren Buffett prefers to buy in the 70% and 80%’s).

But enough risks! Haven’t we had enough stock market worry? If you still feel like you’d like to have some fun and buy into stocks made for optimists, here are 3 game-changing companies to keep your eye on.

Infinera (NASDAQ: INFN)

What is the most influential piece of technology in recent memory? The first thing that comes to mind is the internet. The sign of a developed country is no longer literacy, but internet connectivity. So, as the world’s internet traffic grows and demand for internet bandwidth increases, Infinera is there to meet that demand with its futuristic Photonic Integrated Circuits. In the 100G technology market, Infinera is now the market leader. Keep in mind that this is a market projected to grow at an almost 50% CAGR for the next four years.

Infinera operates in an industry where it’s difficult to get new customers. Given the capital already put into place by older market leaders, it’s tough to convince a customer to go to a new company, even if they have more efficient, faster technology. However, Infinera has done well, acquiring Vodafone and Duke University as customers. If Infinera can convince customers that it is worth trusting its technology, it could be worth much more than it is now. News like the other day’s (Infinera’s PIC technology has surpassed 1 billion hours of failure free operation) can only help. 

Even with Infinera's amazing new technology, the company isn't yet profitable--sales only grew 8% over last year, and gross margins have declined each of the last 3 years. Infinera's biggest threat is clear in these numbers. It's the smallest member of its market, giving it very little ability to attract new customers and raise prices on its customers. The thesis for Infinera's future is clear, however. It's the argument that superior technology will eventually win over strong business relationships and market position, and if you don't believe in this thesis, Infinera's future might not be your type of tech story.

Invensense(NYSE: INVN(NYSE: INVN))

Invensense, on the other hand, is a market leader. This is a company that provides the gyroscopes, accelerometers, and other fancy sensors in smartphones, tablets, and many other products that allow them to use motion-tracking technology. Invensense has currently taken over the smartphone market, with Apple as the only smartphone company still using their main competitor’s, STMicroelectronics, technology. However, even that could change. Invensense clearly has superior technology, and Piper Jaffray now believes that Apple is likely also among Invensense’s customers. While legal issues with STMicroelectronics currently overhang the stock price, continued revenue growth with the addition of Apple as a customer could provide a catalyst for large future gains. Moreover, if Invensense simply continues to ride the growth in the worldwide smartphone market, it should do perfectly fine in the long run. Technavio projects that smartphones markets will continue to grow by 10% compounded annually at least until 2016.

Invensense is already profitable, however, and trades for 24x earnings after achieving 36% sales growth since last year.  As Invensense's biggest competitor, STMicroelectronics's sales actually fell 13% last year, Invensense could become very cheap if it can grow and sustain its earnings. According to Finviz, Invensense is only trading at 17x forward earnings, and things should get better in the years ahead.

Nuance Communications(NASDAQ: NUAN)

A voice recognition solutions company, Nuance Communications provides healthcare, enterprise, and mobile with much-needed products. In mobile, Nuance is partnered with both Samsung and Apple, and should be able to profit from smartphones no matter who wins the smartphone war. Nuance is also breaking into the car industry by providing voice recognition technology to companies like Ford, GM, BMW, and Audi. In enterprise, Nuance has a service that can convert voicemails to a text message, and has already provided this service for AT&T, Vonage, and T-Mobile.

However, what’s truly revolutionary about Nuance is its ability to break into the US healthcare system. Physicians in the US have to do dictations for every one of their patients. Currently, those dictations are transcribed manually. However, Nuance technology is being adopted in hospitals to allow physicians to directly transcribe their own patient notes, saving mountains of money for hospitals. Moreover, Nuance has been integrated with more coding technology that allows easier input into hospital databases and medical records. As of the recent quarter, Nuance runs an annualized 5.2 billion lines in dictation, a significant barrier to entry for other voice recognition competitors.

In its most recent quarter, Nuance grew revenue 15.6% and declared a 500 million share repurchase (8% of their market cap). While they’re having trouble increasing their organic growth (currently focusing on consolidating their many acquisitions), they have a lot of natural growth in mobile and a solid barrier of entry in healthcare, which should provide a lot of value in the future, especially with their improved share repurchase plan.

If you're an optimist and love a company that innovates, these three put a lot on the table. These are three stocks you're likely to see a lot more of in the coming years.

Speech recognition is yet another nascent technology set to explode with the rise of tablets and smartphones, and no company is better poised to benefit from this coming boom than Nuance Communications. However, this growth story doesn't come without risks, too. The Motley Fool recently published a premium research report to break down what investors interested in Nuance absolutely have to understand before investing, so click here now to grab your copy today.

Nikhil Shamapant has no position in any stocks mentioned. The Motley Fool recommends Infinera and Nuance Communications. The Motley Fool owns shares of Infinera , InvenSense, and Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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