Talking Up Two Tech Plays

 | Jul 12, 2013 | 12:30 PM EDT  | Comments
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The market continues in rally mode on the latest soothing reassurance from Federal Reserve Chairman Ben Bernanke. The S&P 500 and Dow Jones Industrial Average both closed at all-time highs on Thursday. Bargains are getting harder to find as equities continue to shoot higher.

One sector I still like as I think it offers both growth and value is technology. The sector has only produced about 60% of the gains in the overall market over the past six months. I expect that its performance will revert to the mean over the last half of the year and that the sector will produce superior performance.

My favorite large-cap play in the sector continues to be Microsoft (MSFT); its reorganization announcement was well received by the market yesterday. Today I want to take a look at a couple of voice technology companies whose stocks appear undervalued.

Nuance Communications (NUAN) is a voice and language solution provider for businesses and consumers that is down about 10% since I profiled it in mid-April. I am still holding my stake in the company as I like its recent acquisition of Tweedle Connect in late May for $80 million. Tweedle has an in-car entertainment platform that aggregates apps such as Pandora, Bing and iHeartRadio. This opens up a new line of customers for Nuance because Tweedle has existing relationships with Toyota Motor (TM) and Lexus.

Carl Icahn has increased his stake in the name since mid-April. He now holds about 3.7 million shares, so he can always be a possible catalyst if Nuance cannot produce the results to move its stock forward. The company is expected to post a revenue increase near 15% in fiscal 2013 and just below 10% in fiscal 2014. Given that, the shares are not expensive, and are trading at under 12.5x forward earnings. The company is set to report its quarterly earnings results in early August. I am hopeful that this will be the catalyst that will get the stock moving again.

Audience (ADNC) provides intelligent voice and audio solutions for mobile devices worldwide. The company's platform consists of proprietary, purpose-built digital signal processors as well as analog and mixed signal circuits. The company has less than a $300 million market capitalization, almost 40% of which is represented by the net cash on the company's balance sheet.

The company is tracking to produce revenue gains of better than 25% in fiscal 2013 and analysts expect sales increases of more than 15% in fiscal 2014. Consensus earnings for both fiscal 2013  and fiscal 2014 have moved up about 20% over the past three months as well.

Subtracting cash, the shares are not expensive as they are trading at under 10x 2014's projected earnings. Insiders have also bought more than 50,000 net shares over the past six months. The five analysts who cover the stock have price targets of between $15 to $20 a share on this $13 stock.

I think both of these tech stocks provide good value at current prices. If mergers-and-acquisitions (M&A) activity picks up, I could see either as a logical acquisition candidate for a larger player as well.

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