Technology stocks have performed very well throughout the current bull market. Over the past five years, the technology sector has returned 58.6% and has been the fourth-best performing sector, behind health care, consumer discretionary and consumer staples.
However, the group of stocks that have helped continue driving indexes higher, nicknamed FANG stocks, are all well-known technology stocks. Facebook, Amazon, Netflix and Google make up the acronym and have been explosive outperformers and drivers of market gains throughout the last several years.
While the technology sector has been a strong performer, picking individual companies within the sector has seemed to provide even stronger gains. While the FANG stocks specifically are forecast to stay relatively flat for 2016, aggressive investors could research these five micro-cap technology stocks for gains in 2016
Internet Gold
Internet Gold Golden Lines Ltd. (NASDAQ: IGLD) is a communications company based in Israel. The $203.59 million company soared last year, returning 62.88%.Internet Gold struggled significantly in 2014, but managed to contain issues and have a relatively decent 2015. For instance, the communications company reported third quarter 2015 earnings in November 2015 that showed the company had earnings per share (EPS) of 2 cents on revenue of $663 million, after posting negative results in the third quarter of 2014.
Turning to the fundamentals, Internet Gold Golden Lines has a price-to-earnings (P/E) ratio of 16.86 and a price/earnings to growth (PEG) ratio of 1.12. The stock is undervalued compared to sales, cash and free cash flow, as seen with a price-to-sales (P/S) ratio of 0.08, a price-to-cash (P/C) ratio of 0.24 and a price to free cash flow (P/FCF) ratio of 0.28. While Internet Gold is a small stock with no analyst coverage, the company has improved greatly since 2014, which is the reasoning behind shares soaring 119% in the past six months and 62.88% in past year.
NCI
NCI, Inc. (NASDAQ: NCIT) is a provider of information technology services, primarily to government agencies, defense, intelligence and health care providers. Based in the United States, NCI has a market cap of $188.64 million and has outperformed in the past year, returning 28.87%.In September 2015, NCI won a U.S. Army contract worth $14 million pertaining to software testing in Fort Hood, Texas. Additionally, in October 2015, NCI won yet another U.S. Army contract worth $211 million to work on U.S. Army Program Executive Office (PEO) programs in Virginia. These key contracts will continue to help push NCI’s earnings higher over the next year.
Turning to fundamentals, NCI has a P/E ratio of 17.01, and a forward P/E of 15.95. NCI is undervalued when considering sales and free cash flow, as is seen with a P/S of 0.58 and a P/FCF of 7.58. NCI currently has a total debt to equity (D/E) of 0.11 and essentially no cash on hand.
Cohu
Cohu, Inc. (NASDAQ: COHU) offers semiconductor testing systems and solutions and operates in the U.S. The $292.39 million company has performed relatively in line with overall markets in the past year, returning -3.52%.Unlike the last two stocks, Cohu does have some analyst coverage, which currently registers an overall buy consensus. In August 2015, Cohu was upgraded from neutral to buy at Sidoti & Co., and July 2015 saw Dougherty & Co reiterate its buy rating on the company, but it did lower Cohu's target price to $14 from $16.
Cohu reported third quarter earnings in October 2015 that showed the company had adjusted EPS of 17 cents on revenue of $67.5 million. Cohu currently has a P/E of 62.17 and a forward P/E of 15.61. Cohu has an undervalued a P/S of 0.97, and strong cash flow with a P/FCF of 10.08. Additionally, Cohu has no debt, registers cash per share of 3.47 and pays an annual dividend of 2.14%. Cohu's forward guidance is largely contingent on the overall outlook of the semiconductor industry. Since Cohu relies on testing of semiconductors, it is important to consider semiconductor volumes, sales and innovations, such as LG's recent 8K TV, which was unveiled at CES 2015.
Hurco
Hurco Companies, Inc. (NASDAQ: HURC) specializes in technology solutions for industrial and manufacturing clients. More specifically, Hurco offers computer-programmed tools that assist in a variety of metal cutting techniques. The U.S.-based company has a market cap of $179 million and has returned -14.64% in the past year.In January 2016, Hurco reported its fourth quarter and full year 2015 results. For the fourth quarter, Hurco reported its EPS came in at 72 cents and its full-year 2015 EPS registered at $2.44. Fourth quarter 2015 revenue jumped 6% from the same period in 2014, and full-year revenue saw a 8% increase from full-year 2014 results. Hurco has a current P/E ratio of 11.02, an undervalued P/S ratio of 0.83 and an undervalued P/FCF ratio of 8.91. Its total debt/equity (D/E) is essentially nonexistent at 0.01, and its cash per share is strong at 7.63, giving the company a strong current ratio of 3.4. Hurco also pays an annual dividend of 1.17%.
ReneSola
ReneSola Ltd. (NYSE: SOL) is a bit of a wild card for investors seeking high-risk, high-return opportunities. ReneSola is a Chinese solar panel manufacturer that has outperformed over the past year, returning 28.79%. ReneSola's most recent earnings release took place in November 2015 for its third quarter 2015 release. For the third quarter of 2015, ReneSola posted EPS of 8 cents on revenue of $368.2 million. Zacks Investment Research was forecasting EPS of -5 cents on revenue of $335 million.Currently, ReneSola is not profitable and is not forecast to reach profitability within the next year. However, the stock is undervalued when looking at sales and free cash flow: it has a P/S ratio of 0.13 and a P/FCF of 2.58.
Aside from a lack of profitability, there is a concern with debt. ReneSola had $750 million in debt on its balance sheet as of September 2015, and cash of $86 million. However, ReneSola is forecasting strong earnings growth moving forward; the company sees stronger monetization from projects in Japan and the United Kingdom, and there are strong cash flow figures.
However, a struggling China
could put potential risks on companies such as ReneSola. While solar
power's long-term outlook remains strong, there are certainly some
near-term headwinds that investors should keep in mind.
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