Three Lesser-Known Tech Stalwarts

 | Feb 21, 2012 | 4:30 PM EST
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While some industries struggle, others thrive. Autos are up, and housing remains down. An industry that's flying high is technology. The S&P North American Technology Sector Index is up 13.69% this year, compared with an 8.2% rise in the S&P 500.

We all know about Apple (AAPL) and its spectacular performance. But the tech sector has plenty of other winners that could boost your investment gains. To choose stocks, I use computerized strategies that I based on the writings of noted investors. Here are three tech highflyers that earn high marks from these strategies.

Syntel (SYNT) is a global provider of information technology consulting and outsourcing services for software development, maintenance and management. My Warren Buffett-based strategy views Syntel as a strong investment opportunity. Syntel, which has 30-plus years of history, is well established in its market. The Buffett strategy wants a company that has a durable competitive advantage, and Syntel's history and global reach give it such an advantage. Also in its favor is a fairly predictable earnings-per-share history, with just two dips in the past decade.

Other big pluses: Syntel's lack of any debt and a solid 27.4% return on equity over the last 10 years. The Buffett strategy calculates in two ways the investor's expected annual rate of return during the next 10 years, given the current stock price, and then averages the two. The strategy estimates that the investor will earn 17.1%, which is excellent.

CGI Group (GIB) is Canada's largest IT services firm and one of the largest independent IT services firms in North America. Based in Montreal, it is even older than Syntel, having been founded in 1976. Its businesses include systems integration and consulting, application management and infrastructure services. It is expanding in the U.S. and Europe, has 31,000 employees, more than 125 offices, revenue of $4.3 billion and a backlog of business that exceeds $13 billion.

I use a strategy based on Peter Lynch's approach to investing, and this strategy takes a positive view of CGI. The most significant variable used by this strategy is the P/E/G ratio, which is the price-to-earnings ratio relative to growth. The P/E/G measures how much the investor is paying for growth, with 1.0 being the maximum allowed and 0.5 or less being particularly strong. Since CGI Group has a P/E of 13.49 and a growth rate of 25.38%, based on the average of the three-, four- and five-year historical EPS growth rates, its P/E/G is a desirable 0.53. Also positive is its good management of inventory and moderate debt level.

NIC (EGOV), or National Information Consortium, builds Internet websites used by citizens and businesses to access government information and services, such as renewing a license or applying for a permit. Its clients include more than 3,000 federal, state and local government agencies in the U.S. It works on a self-funded model, where users are charged transaction fees to use the websites. This means the company's work does not require tax dollars. Given the current financial difficulties that government agencies are facing, that is very positive.

A strategy I modeled on the writings of Martin Zweig gives NIC a high grade. The company's revenue and earnings growth are in balance. That balance is important to this strategy, because just cost-cutting or other non-sales measures cannot sustain growth over time. Also in the company's favor are positive earnings growth for the current quarter compared with the same quarter a year ago, earnings per share that have increased in each of the past five years, and the absence of any debt.

These three companies are well positioned to take advantage of tech's current strength. If you are a tech sector fan, consider these tech stalwarts.


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