7 Hot Tech Stocks to Watch in 2013
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The Fiscal Times
January 7, 2013

Technology stocks as a group had a solid, if unspectacular, 2012. The S&P 500 Information Technology sector gained 13.15 percent last year, in fourth place among the 10 S&P sectors and slightly less than the 13.41 percent advance recorded by the broader market. Techs did even worse in December, posting a small decline of 0.1 percent while the S&P 500 edged 0.7 percent higher.
 
And yet…if you take a close look at the list of 25 individual stocks that fared the best over that final month of the year, you’ll find a number of tech and internet-related companies. We’ve already looked at whether some of last year’s big winners – banks and homebuilders – can keep rallying in the new year. But what about these December darlings?

Netflix (NASDAQ: NFLX), for example, soared 13.6 percent in December. It technically qualifies as a consumer discretionary stock, but it’s one whose business simply wouldn’t exist without the Internet. Netflix is a polarizing stock, with investors tending to love it or hate it. Lately, the lovers have been winning, even as Netflix has continued battling it out with Amazon (NASDAQ: AMZN), which has made a big push into streaming video, and braces for intensified rivalry from the likes of Hulu and others.

The stock’s December gains capped off a dramatic fourth-quarter jump of 70 percent, amidst a licensing deal with Disney (NYSE: DIS), a 10% stake purchased by activist investor Carl Icahn and reports showing that consumer demand for the ability to pick and choose what shows to watch and when to watch them is growing rapidly. And so far, at least, Netflix – whose little DVD-bearing envelopes became a staple in so many households in the last decade – is continuing to grab more eyeballs than any of its rivals.
 
Akamai Technologies (NASDAQ: AKAM) is one of those companies likely to benefit from the migration to the “cloud.” It provides services helping businesses run better and faster in cyberspace, and recently signed a multi-year agreement with AT&T, under the terms of which AT&T’s business clients will be able to tap into Akamai’s content delivery service. Oh yeah – and its earnings have been growing. Little wonder that the stock hit a 52-week high last month and posted a return of 11.7 percent in December.
 
JDS Uniphase (NASDAQ: JDSU), like Akamai, is a name that will be familiar to anyone who watched the big technology bubble of the 1990s take shape. It has been a volatile ride ever since, and the company’s earnings are flagging, but the telecommunications technology provider, which specializes in optical products, offers rising revenues and adequate cash flow. The company got a boost in December from the decision by Piper Jaffray analyst Troy Jensen to boost his price target to $16 from $12 (the stock now trades at about $14 a share). Jensen’s bullishness stems from a conviction that spending by telecom companies is about to take an upward turn, and that JDS Uniphase is likely to be one of the beneficiaries as its customers move to improve their network infrastructures later this year. JDS Uniphase climbed 16.2 percent in December.

VeriSign (NASDAQ: VRSN) may not be a household name, but every time someone registers a new domain name on the Internet – say, you or a friend start a blog or a wedding-planning site with a .com suffix – it collects a fee. At the end of November, the Commerce Department extended its contract to manage this domain name registry for another six year, although the lack of automatic price increases caused investors to dump the shares. December witnessed a recovery, however, and the company’s shares bounced 13.7 percent higher, overall fourth-quarter loss to 20.3 percent. Investors appeared to think twice about the details of the contract – especially when VeriSign announced plans to increase the fee to register a “.net” address.
 
First Solar (NASDAQ: FSLR) isn’t technically an energy company, but a technology business that relies on solar-generating technology to produce electricity. Its primary business is a power plant in Arizona, but it’s also investigating new opportunities in power-hungry, sunny corners of the world like India and Dubai. A combination of healthy earnings and the surprise success of another solar power infrastructure company, SolarCity (NASDAQ: SCTY), gave First Solar a boost and sent its share price soaring 14.41 percent in December alone. That wasn’t enough to erase earlier losses – First Solar ended 2012 down 8.53 percent for the year – but it marks a shift in sentiment.
 
Seagate Technology (NASDAQ: STX) may be buffeted by anxiety about demand for digital memory storage, but it pays dividends – big dividends. True, its yield has dipped from nearly 6 percent to about 4.8 percent today, but that’s still more than double the yield on the S&P 500 as a whole. And the company’s cash flow seems able to sustain that. There are questions hovering overhead – specifically, whether margins will suffer from the slower demand – but hedge fund manager David Einhorn has been a vocal fan. And do you really want to bicker with Einhorn?

Even if the company isn’t able to continue boosting its dividend as aggressively as it has in the past, investors seem to have concluded that a combination of Einhorn’s endorsement and the current yield make it a buy. At least, that’s one conclusion to draw from the fact that Seagate’s shares soared 21.43 percent in December. That seemed to many to answer questions about what the real trend was for Seagate: Earlier in the year its stock had been on a tear, but it had faltered at the start of the fourth quarter and, in spite of that robust December, ended the three-month period with a loss of 1.68 percent.
 
Western Digital (NASDAQ: WDC) is another disk drive manufacturer that has been pummeled by rumors of the demise of the personal computer – but a number of analysts argue that it’s better positioned for both downside and upside scenarios than rival Seagate. (Together, they control about 80 percent of the market.) If the launch of Windows 8 – disappointing so far – winds up sending consumers out to upgrade their PCs rather than just turn increasingly to tablets, that will help Western Digital – and the company still benefits from the need by ordinary consumers to store data cost-effectively. Oh yes, and it has promised to devote a healthy chunk of its cash to dividends and stock buybacks. Little wonder the stock ended the year by roaring 27 percent higher for December.
 
One note of caution on these seven technology-related companies: They may have dramatically outperformed the S&P 500 in December, but only two began the month on a positive note and also posted a gain for the fourth quarter. Just another reminder that the trend isn’t always your friend.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.