Prospecting for Tech Gains

Rob DeFrancesco, editor of Tech-Stock Prospector, reviews his portfolio and highlights several leading technology stocks that recently reported both strong quarterly earnings and guidance.

Steve Halpern: Joining us today is technology sector expert, Rob DeFrancisco, editor of the Tech-Stock Prospector Newsletter. How are you doing today, Rob?

Rob DeFrancesco: Hi, Steve. Doing well, thanks. How about yourself?

Steve Halpern: Very good. Now you follow the full spectrum of high-tech companies, but today we're going to focus on a group of firms that have reported strong fourth quarter earnings and have also issued strong earnings guidance, so let's begin with one of the companies you like. It's called Workday (WDAY).

Rob DeFrancesco: Yeah, it did come up. It was a strong Q4 earnings season and a lot of these names, particularly the momentum names in software, did well. Workday, which provides cloud-based human resources and financials software competes with legacy vendors like Oracle (ORCL) and SAP (SAP).

They had revenue growth of 74%, driven by subscription revenue of 86% and the stock ran up to 116. It's pulled back now to around 103. The numbers were great. Back log of over 600 million plus unearned revenue of over 400 million and they're looking for 2014 revenue growth of 54%.

Then, another name similar competes is NetSuite (N), which does something similar to Workday, in the same area, but it concentrates on some smaller companies. Workday tends to go after larger enterprises.

NetSuite had Q4 revenue growth of 37%, which is the best performance since Q4 of '08 and, actually, in 2013, was the fourth consecutive year of accelerated top line growth, 34% versus 31% in 2012. They're looking at a little slower earnings revenue growth, 30% in 2014 and that stock has also come down.

That was up to $120, back around $100. The thing is, a lot of these first quarters tend to be a seasonally slow quarters for techs so we may get more of a pullback if expectations are high going into the Q1 numbers, but we may get a better entry point for some of these stocks.

Steve Halpern: Now, you also like a company called Splunk (SPLK). Can you tell us what that company does?

Rob DeFrancesco: Splunk provides a software that analyzes machine data. It's a big data play, or Internet of things, so analyzing any type of—even something like manufacturing facilities and you can even analyze flow of elevators in buildings to see where—just basically any type of tick data where you're analyzing information for a machine.

They reported Q4 revenue of 53% growth and they now have 7,000 customers. They added record of 500 in Q4 and the revenue this year is expected to be up over 50%.

And that's another one where it went right up to around 106, back down to around 85, so that's another example of one that's pulled back but still has strong growth potential.

Steve Halpern: Okay. Next on your list is a company called ServiceNow (NOW). What's the attraction there?

Rob DeFrancesco: ServiceNow is disrupting the IT management space. They're cloud-based. They're going against legacy vendors like BMC (BMC). And ServiceNow, that's another strong revenue grower, up 50% expected for this year, 38% for next year.

Page 1 | Page 2 | Next Page The expert featured in this column, Rob DeFrancesco, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.