It’s Small-Cap Tech’s Time Again

09/12/2007 12:00 am EST


James Oberweis

President, Oberweis Asset Management, Inc.

Jim Oberweis, editor of the Oberweis Report, says that after a long hiatus, technology stocks are market leaders again, and small-cap tech stocks especially could set the pace.

While we are neither willing nor able to predict when the roller coaster ride will stop, we have noticed an interesting pattern during the [current market] turmoil—technology stocks are showing relative strength.

Recent history says that value stocks outperform growth stocks. It’s been that way six out of the last seven years. Investors have made lots of money buying stodgy, old economy stocks like real estate investment trusts (REITs), financials and basic materials.

These stocks have performed so well for so long that value stocks are expensive relative to their growth brethren. Technology looks—dare we say—particularly cheap.

Blasphemous, you cry, still smarting from an Internet bubble beating. But just look at how well tech stocks have held up in this volatile market environment. Have you checked out the charts of Cisco (NASDAQ: CSCO), Apple (NASDAQ: AAPL) and Research In Motion (NASDAQ: RIMM) lately? Not too shabby.

With the prospect of tech leading the way, we believe it’s time to take another look at small-cap tech [stocks]. While we won’t predict when volatility in the stock market will subside, we believe that when it’s over, growth stocks—and tech specifically—will lead the way to greener pastures. Past performers will fade into the past, and the overall market will follow a new group of winners.

Chordiant Software (NASDAQ: CHRD) is a leading provider of solutions and services to help major enterprises worldwide deliver the best possible customer experience. The company’s software products and solutions help organizations increase employee productivity, improve opportunities for cross-selling and up-selling, and reduce churn.

Chordiant targets businesses and consumers in enterprises across the industry spectrum, including financial services, communications, and insurance/health care, and boasts a marquee list of customer account, including recent wins at First Data, Citigroup, Cigna, and Wellpoint. In the company’s latest reported third quarter, sales increased approximately 36% to $36.8 million from the third quarter of last year. Chordiant Software reported earnings per share of 21 cents per share in the latest reported third quarter, versus a loss in the same quarter of last year. (The stock closed below $14.50 Tuesday—Editor.)

O2Micro International Limited (NASDAQ: OIIM) designs, develops, and markets high-performance integrated circuits (ICs) for power management and security applications. The company focuses design efforts on ICs for consumer electronics, computer, industrial, and communications products.

The company's products use analog, digital, or mixed-signal designs that combine analog and digital circuits on a single chip. The company has offices worldwide. In O2’s latest reported second quarter, sales increased approximately 36% to $38.2 million from the second quarter of last year. O2Micro reported earnings of 22 cents per share in the latest reported second quarter versus a loss in the same quarter of last year. (The stock also closed just below $14.50 on Tuesday—Editor.)

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