2014 Tech Forecast

There's been a lot of talk about a tech bubble.

Forget about it.

The fact is, there are always parts of every sector that are overvalued and pockets that are undervalued.

The easy story for the talking heads in the financial media is to generalize, inflame and move on. The analysis is usually about as deep as your fingernail.

What I'm here to tell you, is that after huge amounts of research and days of elite conferences and hours of interviews, I know there are two tech sectors that have many glorious days ahead of them, regardless of the bearish chatter that you hear from the pundits.

Both of these sectors are just hitting their stride in the "New Economy." This isn't the "old" stuff that you've seen for the past decade or so. These sectors have upgraded their technologies and are taking them to places that no one could anticipate a decade ago.

What's more, they're just beyond the frenetic "first generation" phase when dozens of small companies flood the market only to see most of them wither and die before they ever have a profitable year.

Either way, this duo has huge potential.

And the picks I've highlighted for each sector are where you should focus your attention.

These will give you the biggest bang for your buck as they include industry leaders in cutting edge technologies.

Bear in mind, with any volatile sector, risk is inherent, so be disciplined. These are long-term plays, not short-term trades, so if the fundamental story stays the same, stick with them. If something changes, if may be time to walk away.

Set a mental stop, maybe 15-25% below your initial buy price. If the stock hits it stop; sell. This takes out the dangers of investing on emotions. Then look at the information and see why the stock got hit. If the fundamentals are still solid, get back in at a lower price.

With tech the hedge fund 80-20 rule applies: 80% of your holdings may be losers but the 20 percent that are winners will make you big money. In this case 8 stocks may head down, never to return but the 2 that make it, will more than make up for the losers.

When you get into the right stocks at the right time, triple and quadruple digit gains are not surprising results -- and they are very pleasing.

#1 Tech Sector in 2014: Biotech

Biotech has been around for decades.

But faster computers have led to breakthroughs in our abilities to build biological modeling software that can help researchers build drugs molecule by molecule and then "test" them using other prototyping software before the expensive and time-consuming cost of building the physical drug ever begins.

Technology has also allowed imagery software and hardware to advance so we can see things we've never been able to see before, which means drugs -- and procedures -- become more focused and effective.

I believe that within the next 20 years this will lead to cures for Alzheimer's, cancer, diabetes, and many other problems affecting humanity.

The best way for an investor to ride these breakthroughs to huge profits is with the iShares NASDAQ Biotechnology Index (NASDAQ: IBB).

The iShares IBB is composed of proven winners ... I mean, the fund's chief holdings include a "who's who" of the biotech sector's best performers.

Plus, the recent biotech selloff has created an excellent buying opportunity for new investors looking to get in IBB. After peaking at 275 early in the year, IBB has been trading in the 220 level.

This ETF invests 58% of its money in big-cap firms that have successful products on the market. It's a terrific proxy for one of the hottest sectors in the U.S. stock market - which is why it rose a scorching 56% in 2013.

That's more than double the 24% return the S&P 500 over the same time period.

And it follows the 31% ride the IBB gave its shareholders last year - a return that was nearly triple the 11.68% gain of the overall U.S. stock market. The bottom line:

If this biotech ETF were to continue its rise ... but even at a more conservative annual rate of 20% ... you'd be on pace to double your money by the end of 2016.

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#2 Tech Sector in 2014: The Internet of Things

Do your car headlights come on automatically? Does a light on your dash pop on if your tire pressure is low? Does your phone alert you if you're about to hit something or give you directions from where you are to where you want to be?

This is just the beginning to the fascinating world of sensors.

Again, sensors have been around a while. But their new capabilities are awesome.

They're smaller, more specific and are having enormous impacts in a number of industries including healthcare and manufacturing and production.

Sensors in your kitchen appliances not only interact with you, but with each other. The sensors in our smartphones are expected to triple in the next year or two. Sensors in our cars and machinery are giving us diagnostic and performance information in real time.

Sensors in shipping can tell you everything from location to temperature and humidity of the packages during shipment.

What's driving the internet of things are micro-electro-mechanical-systems, or MEMS for short. MEMS technology continues to report more and more exciting technical and product breakthroughs.

Which brings me to my first "internet of things" pick, TriQuint Semiconductor Inc. (NASDAQ: TQNT).

TriQuint is the "middle man" of the sensor sector. This fast-moving small-cap firm specializes in radio-frequency (RF) sensors that collect the data from the sensors and push it out to machines that communicate to the end user.

Founded in 1985, TriQuint finds the market moving steadily toward it because mobile components need a wide range of RF products, a market segment with a roughly $8 billion value.

Using radio frequencies is an integral part of the mobile world. That's great for TriQuint because these devices need multiple chips to communicate at specific bandwidths.

The big trends here are the adoption of higher mobile bandwidths and the move to WiFi connections. So, smartphones have to be able to shift seamlessly from a cell tower to a broadband connection.

Not only that, but cellular communications require discrete modules for specific bandwidths. That means phones and tablets must have chips for 2G, 3G and 4G, among others.

At the same time, the company makes a great line of high-quality filters. These are needed to make sure that all these signals coming at mobile products don't interfere with each other.

TriQuint knows how to make advanced devices for demanding applications. Then again, it counts several major defense firms as clients. They use TriQuint devices for satellite communications, electronic warfare and navigation, which lie at the heart of a high-tech military.

In its main market segments, TriQuint boasts a roster of marquis clients that include Boeing, Raytheon, Cisco Systems, NEC, Sony, and Samsung.

Now trading above $13, TQNT has soared in 2014, gaining 58% as of April 14. I'd like to see a stronger balance sheet, but the company has a lot of growth potential.

Riding the mobile wave - and the sensor revolution - as well as growing broadband demand, gives TriQuint some excellent catalysts for pushing it higher.

My second favorite internet of things stock is Ambarella Inc. (NASDAQ: AMBA), a nimble small-cap firm that makes semiconductors for video compression and image processing. The company's chips are used in high-definition (HD) video cameras for sports and security, as well as in digital still cameras and automotive video recorders.

The company recently introduced a new chip for the consumer digital video market for what are called "4K cameras," which have four times the resolution of today's HD video cameras.

With a market cap of $754 million, Ambarella has increased earnings per share (EPS) by 27% over the past three years. At that rate, earnings - and the company's stock price - could double in less than three years.

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