Many companies have cut their spending on information technology while they wait for the economy to start growing again. At the same time, consumers are buying less computer equipment as job losses push up the unemployment rate and erode confidence. Still, we feel that high-quality junior tech stocks have a bright long-term outlook. Despite the recession, the best of them remain profitable, and they’ll benefit further from pent-up demand as the economy recovers.
Cyberplex: An “Internet survivor”
In the latest issue of Stock Pickers Digest we took a close look at one tech stock that we think has promise. That company, Cyberplex Inc. (symbol CX on Toronto), is what we like to call an “Internet survivor.”
At the peak of the dot-com bubble of 2000, Cyberplex’s share price shot up to $35, and it had a market cap of almost $1 billion. Today, its shares trade at around $1.70, and its market cap has fallen to a more modest $110.1 million. [ofie_ad] Cyberplex sells a service that links advertisers’ campaigns with its affiliates. These include web-site operators, bloggers and email marketers. Advertisers only pay if the tech stock’s campaigns prompt users to do something, such as a fill out an online form or register at an advertiser’s web site. Cyberplex has a number of major companies as clients, including FTD, Xerox, Sony Canada, IAC, Atlantic Lottery Corporation, Vista Print, Aecon, Ontario Power Generation, Scotia Bank and Royal Bank of Canada. The company’s latest results are what really caught our attention: In the three months ended March 31, 2009, Cyberplex’s revenue jumped 307%, to $32.1 million from $7.9 million a year earlier. Its earnings were $4.1 million, or $0.08 a share, compared to $51,858, or nil per share. Unlike many other junior tech stocks, Cyberplex carries no long-term debt. Even better, it has positive cash flow, which means it doesn’t suffer from a “burn rate” (the rate at which a company uses up its cash). In fact, it not only has positive cash flow, it’s building up a formidable reserve: it just issued new shares, a move that raised $17.1 million. It can use these funds to make acquisitions and diversify its client base; while the company has a number of customers, 70% are in the health-care industry. This heavy reliance on one segment of the economy could be a risk factor for Cyberplex over the long term.
Don’t overindulge in junior tech stocks
Despite the attractiveness of some junior tech stocks, we continue to recommend that they make up only a small portion of your portfolio’s manufacturing-sector holdings. Above all, invest only in junior tech stocks that are established niche businesses, rather than start-ups with no real products or services.
You can read our full, in-depth report on Cyberplex and get our latest aggressive investing picks in the latest Stock Pickers Digest. Click here to find out how you can get your copy today.
