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The January Effect Will Boost These 15 Tech Stocks

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THE OTHER SIDE OF TAX SELLING
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This alert was originally sent to TechStrat subscribers on December 17, 2013

Well, as I have detailed for a few weeks, I think we have a very powerful setup for a January Effect this year. The reason is simple: There are so many big winners and gains this year that many stocks are seeing much more than the usual tax loss selling. And compounding the matter is there just are not as many stocks down on a year-to-date basis this year.

However, a stock doesn't have to be down year-to-date to produce a good January Effect move. In fact, it just needs to be down a lot from year-to-date highs. Also, it was very hard to cut this list down to 15 names. It could have just as easily been 25 names.

So without further adieu:

BroadSoft (BSFT) -- I've written a lot on this one lately. I still think the last quarter was hugely misinterpreted and there is a lot of runway for the name to really grow in the coming quarters and years. Moreover, it's near the top of my Potential M&A list. In fact, that will be a common theme with many of these names.

Cyan (CYNI) -- Frankly, when I look at this name in the $4s, it's still shocking given how much potential it has and the fact that even after management guided lower, it still guided for 30-35% year-over-year growth. This one has truly been a huge tax-loss selling victim and one of the pure plays on Sedona (SDN). When I look at this name, I'm reminded of how maligned the solars were a year ago today and how much they ramped in 2013.

EZchip Semiconductor (EZCH) -- Unlike others on this list, EZCH didn't just report a miss or have a big guide lower. A Cisco (CSCO) rumor has done most of the recent damage and then poor year-to-date performance, I believe, has done the rest.

F5 Networks (FFIV) -- As written, I'm still mystified by the lack of upside punch in this name after the last breakout that followed the earnings report. Here again is a name that is set to benefit (I believe greatly) from the carrier move to SDN. This stock should already be in the low $100s in my opinion.

Fusion-io (FIO) -- Frankly, I'm loathe to even mention this name as it's truly my worst pick of the last two years. However, I'm still seeing solid to great Tech coming out of the company's products and the OEM deals might well surprise in coming Q's. Further, this is a name that could be a take-out in any given week. It's just that cheap and many larger companies could buy them with just a single quarter of cash flow.

GSV Capital (GSVC) -- This one is actually a big solid year-to-date winner but has had a big drop post the Twitter (TWTR) IPO. I've written plenty on this and the very substantial discount to fair value NAV. See prior notes on the name.

JDS Uniphase (JDSU) -- This one is just too cheap, and again, I think M&A could come into this group. JDSU has the cash flow and balance sheet metrics to support a big premium. Frankly, this is a far better company than the stock price is reflecting. Again, I look at this one and think SunPower (SPWR).

Jive Software (JIVE) -- This is a product refresh and is coming into much much easier comps. It's also hugely discounted vs. other SaaS and Cloud software names. Again, this could be a takeout anytime.

Mellanox Technologies (MLNX) -- It's not a name I love, but it's been acting better of late and has been tortured nearly all year long and should be also coming into an improved comp cycle. This one looks like a double bottom on the chart.

Nuance Communications (NUAN) -- I pegged this one in the $13.20's when I added and did so specifically for a January Effect play. It has bounced, but it should go more as the calendar rolls.

Qlik Technologies (QLIK) -- This one was a huge winner on the year, but it just had a bad quarter and was totally shelled. I wouldn't be surprised if this one shoots back into the gap, which puts the $28-31 area in play.

Rackspace Hosting (RAX) -- This is another name that has been a good trader for me this year as I've attacked it into the two big drops and gaps lower that it had. I wouldn't be surprised if this one becomes M&A fodder as well.

Ruckus Wireless (RKUS) -- Ruckus is actually one of my higher conviction names in general. Interestingly, it didn't report a bad quarter recently in my view, and like FFIV, I think a price surge due to quality and growth should be forthcoming.

Trulia (TRLA) -- This one was a great trade for me earlier in the year. Sure, I gave it up a bit too low, but I don't hold names into bubble froth, which I felt this one entered along with Zillow (Z). Now versus Zillow, TRLA sells at a valuation discount while having superior growth.

Ixia (XXIA) -- As cheap as I think JDSU and a couple other fiber optics names are, XXIA might be even cheaper. It has a strong management team, and I like the recent M&A it just executed as well. Moreover, it is seeing very strong growth out of new products and NextGen networking areas. To me, this is a classic end-of-year-tax-loss victim that also has been hurt by a delayed 10-Q filing.

Honorable Mention:

Gigamon (GIMO) and Infoblox (BLOX) -- Frankly, I was going to put both on the list, then was going to just add GIMO. However, when it comes down to it, I don't think GIMO needs to be on here as it's one of my favorite "NEW" growth names and will probably be on my stocks for 2014. As for BLOX, it's just a recent selling victim on the earnings miss more than anything else. Moreover, I'm not that sure that BLOX will surge from the calendar roll as much as the others on this list could.

Bottom Line: I think a good number of these names could see a strong January Effect trade and some of them have started percolating a bit already. That's a good sign as the January Effect trade usually starts a couple of weeks early for names with the biggest bounce potential.



Sean provides in-depth analysis, strategies and trades across the technology sector in his TechStrat Report. Take a FREE 14 day trial
POSITION:  Position in all mentioned.

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