Monday, May 9, 2011

Why Small-Cap Tech Stocks Will Have a Monster Year

In the past week, we've seen America's largest tech firms crow about their results... and predict even bigger things to come.

Last Wednesday, Intel reported earnings. CEO Paul Otellini said demand for the company's products right now is "incredible"... "We are witnessing an explosion of computing devices that connect to the Internet."

On the same day, Apple CFO Peter Oppenheimer said, "We sold every iPad we made for this quarter." Apple also sold 18.6 million iPhones over the past three months. That's 2 million more than analysts forecast.

Other large-cap tech companies like IBM, VM Ware, and Qualcomm said business is great right now. I'm sure Microsoft will echo similar comments when it reports earnings this week.

Based on the numbers, this is one of the strongest quarters for large-cap tech stocks in at least the past five years. I see no signs of this trend slowing down.

There are a few ways to play this trend. One is to buy the iShares Dow Jones U.S. Technology Fund (IYW). This is an index of large-cap tech stocks, including all the companies I mentioned above.

I wouldn't be surprised if this index breaks $70 in the short-term.

I think you'll do well with IYW... but there's a much better way to play this trend.

Hundreds of small-cap technology companies will be huge beneficiaries of Big Tech's success. These small caps are what I like to call "nuts and bolts" companies. They make the parts that go into tech gadgets. Without them, there would be no handheld phones or tablets.

For example, iPhones and iPads have been flying off shelves. Shares of Apple are up roughly 35% in the past year. That's not a bad return over a 12-month period.

On the other hand, shares of TriQuint Semiconductor are up almost 60% in the same period. TriQuint makes power amplifiers for Apple's iPhone and iPad. It's just one of dozens of small-cap nuts and bolts companies that make parts found in Apple devices.

Over the past five years, I've recommended a number of winning nuts and bolts companies to my subscribers. Based on the latest strength in earnings from large-cap tech companies, I will be going to this well again in future issues of my Penny Stock Specialist newsletter.

I wouldn't wait long to jump on this bandwagon. We are still in the early innings of earning season Most small caps don't report for a few weeks. The positive tone expressed by the tech giants will filter down into the nuts and bolts players – and their stock prices – soon.

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