Dust Off These Little-Known Gems

 | Apr 05, 2014 | 10:30 AM EDT
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Outside of such mainstays as Apple (AAPL), Facebook (FB) and Google (GOOG), the technology industry encompasses dozens and dozens of companies, many of which are unknown to you. But a lack of exposure does point to a poor investment opportunity. Plenty of lesser-known companies sport high-performing stocks, and this as true in tech as it is in any other group.

In today's piece, then, I'll detail two tech names that have relatively small market capitalization and low public profiles, but whose shares are likely to do well over time. That's because both of them have garnered approval from my guru screens --- computerized strategies that I've modeled after some of the most successful investors on Wall Street. When these strategies like a stock, I pay attention, regardless of how little- or well-known it is.

One of these is Liquidity Services (LQDT), with a market cap of just under $600 million, which runs an online auction marketplace for surplus and salvage products. Government agencies, global Fortune 1000 companies and middle-market companies sell more than 500 categories of surplus products via Liquidity Services' auction sites. Industrial machinery, equipment, materials, vehicles and inventory are among the types of products sold.

Importantly, Liquidity Services passes muster with one of my guru strategies -- that based on the writings of Joel Greenblatt. This strategy uses only two variables, the fewest of any successful long-term strategy of which I'm aware.

The screen first looks at earnings yield -- calculating by dividing earnings before interest and taxes by enterprise value, which includes the share price and company debt. The second variable is return on total capital, which determines how well a firm uses the capital it employs. The company is then ranked, based on these two variables, against all the thousands of listed stocks on the New York Stock Exchange and the Nasdaq.

Among all the stocks in our database, Liquidity Services ranks an impressive 16.

Let's move on to our second obscure name: PC Connection (PCCC). The company, with a market cap of $550 million, is a direct marketer of computer systems, software, networking equipment and the like. It offers more than 300,000 products and is well-established in its marketplace, having been in business since 1982. 

Despite its lack of notoriety, my Peter Lynch-based strategy thinks this stock is worth buying. The most significant variable used by this strategy is the P/E/G ratio, which is price-to-earnings ratio relative to growth, a measure of what an investor is paying for growth. A P/E/G up to 1.0 is acceptable, and PC Connection's is well below this threshold -- 0.69. PC Connection also has another factor in its favor: no debt.

So, again, while neither of these has the glitz or glamour of the tech world's marquee firms, they are still worthy of your attention.

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