Two Big Tech Names With Upside

 | Apr 12, 2013 | 12:00 PM EDT
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Another day, another new high for major indices.

As I noted in my column about medical stocks earlier this week, it's common to see advice about taking profits or even shorting some stocks that have run up in what might be called the "Bernanke rally." While I don't really have an issue with taking some profits -- you always end up on the plus side when you do that -- I don't like the "prognostication" approach to investing.

For example, just last week, the pundit class was chattering about the market top and the need to take money off the table. As of Thursday's close, that trade didn't work out so well.

But if you run a portfolio of individual stocks, it's always a good time to watch for some large-caps that can serve as anchors, around which you can add some mid- and small-cap names.

I regularly run a scan of large-caps that have outstanding earnings estimates. It's true that analysts' views can be wrong, either to the upside or the downside, but the estimates give you some insight into investor confidence in a company at any given time.

A large-cap that lands on several of my screens is LinkedIn (LNKD). This company has a couple of things going for it, namely revenue and income growth and youth. The company has figured out how to monetize its customer base better than other social media companies such as Facebook (FB) or Twitter.

LinkedIn's revenue grew at a rate of 81% in the most recent quarter, to $303.6 million. Earnings per share came in at $0.35, a whopping 192% increase over the year-earlier quarter.

Analysts see LinkedIn growing earnings by 51% this year, to $1.34 per share. Next year, that's expected to grow another 55%, to $2.08 per share.

It feels like LinkedIn has been publicly traded for a long time, but it's actually been public for less than two years. It debuted at $45 in May 2011. At midmorning today it was trading at $178.63.

Despite being a large-cap, with a market capitalization of $19.65 billion, it's still a component of the iShares Russell Midcap Index Fund (IWR), which tracks the Russell Midcap Index.

LinkedIn gets lumped in with "tech," although I consider it more of a content company that uses the Internet as its platform.

A company that fits more neatly into the tech category is ARM Holdings (ARMH). The U.K.-based company's intellectual property is nearly ubiquitous in processors for various popular mobile devices. As consumers and business users around the world gravitate toward tablets and mobile phones, and away from desktop computers, the effects should be favorable for ARM.

Unlike the crop of stocks rushing to new highs lately, ARM has been in a very gentle consolidation. The stock had some rough days last month, as VMWare's (VMW) CEO dismissed the notion that ARM would corner a sizeable chunk of the server chip market. It suffered another downdraft a few days later, as longtime CEO Warren East announced his retirement. East has run the company for the past 12 years, an era of strong growth.

Nonetheless, in the most recent consensus estimates, analysts raised their outlook for the company's earnings. It's expected to deliver per-share income of $0.88 this year, a gain of 24%. Next year, analysts expect that to grow another 30%, to $1.14 per share.

I'm not necessarily saying to jump into these stocks. I like their potential, although we currently don't hold positions of either in our Equity Overlay portfolio. However, if they fit with your other holdings and your investing objective, they may be worth a look. 

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