One sector that I’m optimistic about in 2014 is enterprise tech stocks, particularly those that have strong business niches in both virtualization and security.
Why? Tech research firm Gartner recently said that global IT spending will grow 3.1% this year. While they may not sound like much at first glance, a closer look gives us plenty to cheer about.
Enterprise spending on technology that makes businesses more efficient – such as supply chain and marketing management software – will grow much faster than the headline number, at about 10% this year.
That tells me that stocks in the analytics space have a real leg up at such a growth rate, as they demonstrate continued popularity and gain new customers while also cross-selling into an entrenched client base.
My favorite play on this trend is SolarWinds (SWI), which has a presence in both virtualization and security, and offers solid profit potential over the next several months thanks to dedicated customers and a growth rate that is already outpacing the overall industry.
SolarWinds (which has nothing to do with solar power or alternative energy!) is an enterprise software company that sells its products to organizations of all shapes and sizes all over the world, including many Fortune 500 companies. Its main goal is to help other businesses cut costs and operate more efficiently. SWI does so through good products that cost less than many of its competitors, providing strong value that has resulted in a big and loyal customer base.
The company has built its niche in providing software that helps IT professionals manage all aspects of their firms’ technology – from networks to servers – through its Orion Network Performance Monitor, SWI’s flagship product. The software can also monitor, troubleshoot and repair remotely. This is done through a process called virtualization, where data and network applications use the cloud to host data, applications and analytics.
Clients can then access whatever they need from their individual machines. Most of us are familiar with pulling data off a network server or a cloud location such as Google (GOOG) docs, but virtualization allows the machines to function in different operating systems as well. The machines in essence become customizable so they can be used for a variety of different purposes. This is simpler and cheaper than every machine functioning on its one operating system and configured for specific purposes.
Virtualization is a big part of technology’s growth outlook, and is also among the trends buoying other tech names, including NICE Systems (NICE). IT departments all over the world have adopted this approach rapidly in recent years, and SWI’s competitive pricing makes its products very attractive to midsize companies and smaller organizations.
SolarWinds is a real recession and post-recession success story. It continued to grow through the worst of times, increasing revenues from roughly $60 million before the Great Recession to a run rate of about $300 million today. The company has followed a “buy and build” mentality, which means the company has growth both organically and inorganically at double-digit rates thanks to its own product development and strategic profitable acquisitions – a trend that looks set to continue.