Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Fraser Mackersie, Unicorn Free Spirit Fund.
During the tech boom at the end of the nineties, a wave of money chased a limited number of newly created technology businesses. However, we believe the opposite is now true. There is currently a wide selection of under-appreciated investment opportunities in the quoted technology sector. We are regularly turning up interesting, well-run, cash-generative businesses operating in niche markets. The better ones show good financial discipline too.
The increasingly cash-generative nature of the sector has also resulted in a steady build up of cash reserves. This is most noticeable in the United States. At Apple, for example, net cash reserves are approaching a staggering $100bn. With American companies in particular facing tax penalties for repatriating cash profits earned overseas, an increase in corporate activity in the sector appears likely. This could provide investors with an extra windfall. The stocks I have selected below have exposure to three specific technology growth themes: cloud computing, wireless connectivity and cyber-security.
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These companies are all well-established, high-growth businesses that have become highly profitable and cash generative. Each exhibits the strong financial disciplines we look for, with a commitment to maintaining a sound balance sheet allied to a progressive, well-covered dividend policy. The strong positions each hold in their respective markets, combined with their exposure to long-term underlying growth themes, gives us confidence.
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Iomart (LSE: IOM) provides managed hosting solutions, including cloud services, from five company-owned data centres in Britain. The domestic market remains fragmented, yet Iomart has demonstrated its ability to make bolt-on acquisitions (using internally generated funds).
With the firm's capacity use currently running at about 40%, there is significant scope for growth on three fronts; namely, winning new customers, organic growth from existing customers and the continued success of bolt-on acquisitions. The share price has performed well over the past 12 months and high operational gearing (fixed costs are a high proportion of total costs) gives me confidence in its ability to continue delivering strong earnings growth.
Anite (LSE: AIE) provides testing solutions worldwide to companies operating in the wireless telecommunications industry. The key driver for Anite over the next few years will be the continued roll out of LTE (4G) technology a development that will significantly improve the experience of mobile internet users.
Anite provides solutions that allow handset manufacturers and network operators to test their products and services to ensure they meet industry standards. As one of only three companies globally with this capability, Anite is well placed to benefit from an industry move towards 4G technology.
My final pick is NCC Group (LSE: NCC), which provides cyber-security consultancy and testing services. These enable organisations to detect weaknesses in their existing online defences. The recent share-price performance has been strong. Moreover, we believe that long-term prospects for NCC remain robust, especially given its increasingly strong position in the growing cyber-crime market.
