The technology sector has roared ahead in 2017. However, it has been a lopsided effort, with much of the gains concentrated in a few well-known tech stocks such as Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX).
While these stocks should continue to do well going forward, keeping your eye only on the sector’s giants will cause you to miss out on the high-reward opportunities in the small- and mid-cap spaces.
Smaller tech stocks can grow at eye-popping rates and, because of their agility, often are at the forefront of investing megatrends. Some smaller technology companies are very likely to end up becoming tomorrow’s dominant names.
Plus, don’t forget the potential for stock-popping buyouts. Larger tech operators that generate massive piles of cash need ways to both spend that money and boost their offerings, and thus are willing to pay large premiums to snap up these smaller players. Just this year, we’ve seen a variety of lucrative buyout deals for the likes of Xactly, Jive Software, RetailMeNot and ShoreTel.
So what overlooked tech stocks offer the best potential for long-term capital gains? Read on to learn about seven lesser-known players that really stand out to me right now.
Lesser-Known Tech Stocks to Buy: Apptio (APTI)
Market Cap: ~$650 million
While many companies spend millions of dollars on information technology infrastructure, many tasks still are done the old-fashioned way. A prime example is benchmarking (for things such as overall performance and costs). In many cases, this still is done using basic spreadsheets!
There’s a much better way, of course, and the solution comes from Apptio Inc (NASDAQ:APTI).
Apptio has pioneered a new category called Technology Business Management (TBM), in which it provides customers with best practices to optimize their IT assets, whether that’s for the cloud, hybrid cloud or on-premises installations.
There’s still the challenge of developing a new category, which takes time because it involves educating customers. Thus, Apptio has invested heavily in conferences, roadshows and committees, such as the TBM Council — a group of 3,500-plus business leaders “dedicated to advancing the discipline of technology business management.”
These efforts are helping Apptio gain traction with, among other things, U.S. federal agencies. That’s a lucrative market opportunity of roughly $90 billion in IT spend per year.
Lesser-Known Tech Stocks to Buy: Criteo (CRTO)
Market Cap: ~$3.2 billion
The ad-tech market has been marred by a slew of bankruptcies. The market is dominated by giant operators such as Facebook and Alphabet Inc (NASDAQ:GOOGL), which have bled the market nearly dry.
Still, the space has a few other notable winners, including Paris-headquartered Criteo SA (ADR) (NASDAQ:CRTO).
What has Criteo done to differentiate itself? When the founders launched the company back in 2005, they focused on machine learning and artificial intelligence. They knew these technologies would produce much better results for their customers. Also critical was that Criteo based its business model on some performance metrics (say, a click-through or a download) that weren’t as fuzzy as others, such as pageviews.
Growth has been solid, including 33% top-line growth to $542 million in Criteo’s most recent quarter. The company also saw operating cash flows spike by 214% to $60 million.
CRTO also is playing a role in helping struggling brick-and-mortar retailers deal with the onslaught of ecommerce companies. According to CEO Eric Eichmann, “Most retailers and brands do not have the technology capabilities to fully organize and activate the abundant data they collect online and offline. They also lack scale to reach and engage consumers online.”
In other words, Criteo likely will be a vital partner in the retail wars.
Lesser-Known Tech Stocks to Buy: Mulesoft (MULE)
Market Cap: ~$2.8 billion
Mulesoft Inc (NYSE:MULE) has a wacky name, but is doing serious business.
Mulesoft boasts an extensive set of technologies that help companies leverage their own data and systems so they can develop better software. It’s a complex business, as many companies utilize a hodgepodge of systems. To get this working seamlessly, they need Mulesoft, which offers next-generation integration approaches.
Consider this from CEO Greg Schott:
“… We are pursuing one of the largest opportunities in technology today. As enterprises move their business to the cloud, deploy SaaS and embrace mobile and IoT initiatives, it is creating an unprecedented IT challenge to quickly and efficiently connecting the various endpoints, and deliver the benefits of digital transformation. We provide a disruptive platform to help companies create an application network, in which they can quickly discover, reuse and compose application components to deliver new and enhanced services. By using an application network, companies can compose new services in days or weeks, instead of the months or years typically required with custom integration code.”
The growth ramp has been robust, including a 57% jump in revenues to $69 million in the most recent quarter.
But while I like the organic growth prospects for MULE stock, the end game could be a buyout. The industry has already seen a lot of M&A activity in the industry, such as Alphabet’s deal for Apigee. A company such as Microsoft Corporation (NASDAQ:MSFT) or Oracle Corporation (NYSE:ORCL) could greatly benefit from absorbing Mulesoft and its platform.
Lesser-Known Tech Stocks to Buy: BlackLine (BL)
Market Cap: ~$1.5 billion
By 2001, Therese Tucker had more than 25 years experience in the accounting/finance industry, including serving as chief technology officer of SunGard. But she no longer was interested in being an employee; instead, she wanted to build a technology company of her own — one that would help financial professionals.
Tucker started a company called Blackline Inc (NASDAQ:BL), and she went all in, funding it herself by cashing in her equity and retirement accounts, and even mortgaging her own home!
The business struggled early, but she persisted, and by 2007 she made a very saavy move — to the cloud.
Growth has exploded since then. Annual revenues have nearly quadrupled over the past three years, to $123 million as of 2016. And Blackline has continued to innovate, now offering a full suite of applications that help with functions like financial closings, account reconciliations, intercompany accounting, and controls for assurance. The automation not only lowers costs but promotes much better accuracy and visibility into a company’s operations.
Blackline also is a no-brainer when it comes to enterprise resource planning (ERP). This is why the company continues to invest heavily in partnerships with companies like SAP SE (ADR) (NYSE:SAP), Workday Inc (NYSE:WDAY) and Oracle’s NetSuite.
Lesser-Known Tech Stocks to Buy: Talend (TLND)
Market Cap: ~$1.1 billion
The world is awash in data, in large part thanks to the increased use of smartphones and their many data-hoarding apps.
Companies like Facebook have proven that data is immensely valuable. But it’s also difficult to process it, as many companies simply don’t have the resources to hire top-notch engineers and data scientists.
Talend SA ADR (NASDAQ:TLND) is an options for those companies. Talend has developed open-source software for data integration, which has helped it grow a thriving community of developers that continue to make the product better.
The technology can be used by any type of business to gain data-driven insights on a real-time basis. Just some of the applications include customer support, fraud detection and even predictions for equipment maintenance needs.
Talend is attracting some real customer attention, and has roughly doubled its top line since 2013. In the most recent quarter, revenues of $35.8 million were up 41%. Better still, TLND is in the early stages of its opportunity — an addressable market that the company projects is worth $17 billion per year.
Lesser-Known Tech Stocks to Buy: Okta (OKTA)
Market Cap: ~$2.2 billion
In the early days of Salesforce.com, inc. (NYSE:CRM), Todd McKinnon led the engineering department, which ballooned from 15 people to 250. Along the way, he received a top education on scaling a cloud business, but he also saw firsthand the inevitable pain points, such as secure logins.
It was there he saw a major business opportunity, and that’s why he launched Okta Inc (NASDAQ:OKTA) in 2009.
The timing seemed off, considering the world economy still was mired in the financial crisis and Great Recession. But companies still were moving toward cloud applications and desperately needed solutions like Okta’s. Says McKinnon:
“At Okta, we recognized from the start that identity is the foundation for connection between people and technology. Our products allow users to connect to any application from any device, all with a simple, intuitive and consumer-like user experience. The Okta Identity Cloud enables millions of users every business data securely access all the applications and data they need to do their most important work.”
Growth has been sizzling. Second-quarter revenues soared by 67% to $53 million, though that was outdone by a 75% jump in billings to $60 million. And Okta now boasts more than 3,350 customers spanning all verticals and sizes.
Lesser-Known Tech Stocks to Buy: Coupa Software (COUP)
Market Cap: ~$1.6 billion
All companies try to cut costs at some point, but it’s difficult on several fronts. Difficulties include things such as compliance issues and damage to the customer experience.
But growth in technologies like AI and machine learning have bred ways to get lean without harming a company’s long-term prospects. This is the focus of Coupa Software Inc (NASDAQ:COUP), whose cloud platform for spend management includes more than 3 million suppliers across the globe.
The approach is called “Value As a Service,” which includes typical items such as procurement, invoicing and expense management for employees. But Coupa also has gone much even deeper, providing services for sourcing, contract management, inventory and supplier management. All these items can have a major impact on a company’s bottom line.
An important catalyst is the recent expansion of a partnership with Amazon Business. Coupa can now leverage the massive base of e-commerce shoppers by making it easier to make purchases based on spending and budget controls.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.