Two Small-Cap Techs in Rally Mode

 | Mar 23, 2012 | 11:00 AM EDT
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A few techs from various subsectors posted significant price gains on Thursday, even while major indices turned lower.

The info tech sector overall has been rotating back into leadership, boosted, of course, by Apple (AAPL) but also by some software and hardware makers whose price performance has outpaced the wider market.

Some newer, not-so-well-known stocks are among the recent crop of price leaders. Tangoe (TNGO), which makes software that helps corporations manage their telephone and data systems, vaulted 8.9% Thursday in four times normal turnover.

The stock went public in July at $10. Like most stocks, it pulled back soon after its IPO, giving investors an entry point in September. Of course, its July public debut occurred after the market had rolled over from a rally attempt earlier that month, and in early August, major indices broke down on fear of a U.S. recession and the European debt crisis.

Often, if a stock holds up better technically than the indices, it's a harbinger of further strength. Tangoe ended September 2011 with a gain of 2.2%, while the Nasdaq Composite plunged 6.4%.

The stock has rallied in six of the past seven months. Thursday's price action was a rebound after 10-week support, its first retreat to the 10-week line since it emerged from a base in February. That, too, is a potentially good sign. After a stock rallies from a base, then pulls back from a new high for the first time, it can be a springboard to further gains.

Another small, fairly young tech that's in rally mode is Procera Networks (PKT), which makes gear to monitor network traffic. The stock went public in September 2007 -- it's another one that made its bow right before a market decline.

It has never regained its opening-month high of $32.40, but price action since November has been bullish, when it cleared a buy point above $11.96. The stock has advanced 78% since then, and after pulling back from Monday's multi-year high of $21.84, it is resting at its 10-day line.

It's currently out of buy range since clearing a secondary consolidation above $18.20 in February. But as always, a stock rallying to fresh highs is worth watching as it pulls back to its next area of moving-average support.

Both Tangoe and Procera report earnings in May, so quarterly results won't be a catalyst for big price moves before then, although other events can certainly cause sharp price swings either up or down.

Smaller stocks are the double-edged swords of investments: They have potential to outpace others in a strong market. However, in weaker market conditions, they can drop more than the major indices.

Tangoe has a market cap of $630 million and moves 356,000 shares a day on average. That's a decent level of liquidity for a stock with such a small capitalization. Upside volume has been fairly high in the past couple of months, another checkmark in the "positives" column.

As for Procera, its market cap is $307 million, and about 244,000 shares change hands per day.

Neither is ridiculously thin, but neither is exceptionally liquid either. As always, small caps need to be treated with a bit more care. But some of these little-known companies that don't get as much attention as Apple can be solid additions to a portfolio, as long as stops or sell rules are part of the strategy.

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