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It is the last day of 2014 and we can’t think of a better day for investors to gear up their portfolios with the biggest potential winners of 2015.
Tech is hot right now.
The Technology SPDR ETF (NYSEArca: XLK) is up over 17.4% year-to-date, while the S&P 500 is up 12.8%.
In reality, the tech sector has been hot for several years. So hot, in fact, that it’s quietly become one of the best places to find dividends.
Nonetheless, even if you missed much of this six-year rally, there are three trends that are set up to be big in 2015. The reason these three trends are huge is they impact nearly every company in existence.
That means the companies at the forefront of these trends could be big for your portfolios. Without further ado, here are the three biggest boom trends for the tech industry in 2015:
Tech Trend No. 1: The Internet of Things
2015 could be the breakout year for wearables. That’s potentially good news for companies expected to enter the market next year. Think of Apple (NASDAQ: AAPL) and the much anticipated launch of its smartwatch. However, wearables aren’t the only part of “The Internet of Things” equation.
When people talk about wearables as the next big thing in The Internet of Things, they are underestimating the market.
Rather, Google (NASDAQ: GOOGL) could be one of the best plays on The Internet of Things. Google has been dwarfing Apple when it comes to making acquisitions. In 2015, Google bought 34 companies.
Most notably, the Nest Labs deal. The home automation acquisition helped really start the conversation over whether Google could eventually find itself on your refrigerator; recall Google’s 2013 letter to the SEC revealing its plans to put ads on thermostats and refrigerators.
After the Nest Labs deal, Google went on to make acquisitions in cloud computing, augmented reality, home monitoring (recall the $555 million Dropcam purchase), music streaming (Songza), artificial intelligence and another home automation deal (Revolv), as well as many other deals in other areas.
Google also already has a 60% share of the worldwide search market. No competitor has more than 10% market share.
This type of market share and initiative to tap into users’lives gives Google an impressive economic moat. Google is now in your home, in your pockets, on your computer and has plans to be on the road within the next couple years. How they connect all this will be interesting, but it should be clear. Google owns a large part of the Internet, and they have their hand in a lot of “things.”
Tech Trend No. 2: Cloud Computing
The idea of cloud computing isn’t new, but it’s still one of the hottest areas of technology.
Some of the most interesting (and often overlooked) players in the cloud computing space include F5 Networks (NASDAQ: FFIV), Akamai Technologies (NASDAQ: AKAM) and NetSuite (NYSE: N). Akamai is a cloud infrastructure company, offering tools for delivering content on websites and accessing cloud based applications.
Meanwhile, NetSuite bills itself as a cloud-based enterprise resource planning software company. Basically, it provides software services for accounting and customer resource management. However, the issue is that NetSuite trades at a price-to-sales ratio above 16.
The best play in the cloud computing space is F5 Networks. The company is an application delivery company, where its software helps with managing web traffic. With more data being pushed to the cloud, managing data traffic is becoming increasingly difficult.
That’s where F5 Networks comes into play. Its prized asset, the TMOS (traffic management operation system) software, affords companies the ability to set their own traffic rules for optimization.
It’s also one of the cheapest players in the industry. And analysts expect the company to grow earnings by an annual average rate of 15% over the next half decade.
Tech Trend No. 3: Cyber Security
Last but not least is cyber security. This area of the market should prove to be one of the most exciting in 2015. This comes after a slew of data breaches this year, including attacks on JPMorgan Chase (NYSE: JPM), Home Depot (NYSE: HD) and, most recently, Sony (NYSE: SNE).
One catalyst driving the need for more advanced cyber security has been the shift to more cloud computing. With more data being stored in the cloud, it’s more vulnerable than ever. Enter the key cyber security players Fortinet (NASDAQ: FTNT), Palo Alto Networks (NYSE: PANW) and FireEye (NASDAQ: FEYE).
Palo Alto Networks runs a network security platform that provides a firewall for enterprises and governments to secure their networks. FireEye is another security platform providing real-time protection to prevent cyber attacks. Yet, both Palo Alto Networks and FireEye trade at price-to-sales ratios of nearly 15.
Meanwhile, Fortinet trades at a much more reasonable valuation; the stock trades at a price-to-sales ratio of 7 and it already generates positive free cash flow. Fortinet is a network security company that offers security services such as firewalls, antivirus, intrusion prevention and anti-spam services.
The key with Fortinet is that investors aren’t sacrificing growth by buying the stock. Analysts expect the company to grow earnings by 25% next year. This comes as the security company is breaking into new areas of the market, such as analysis tools. Its Presence Analysis integrates its security features and the ability to analyze store traffic and marketing efforts.
If you’re not sold on just one cyber security stock, you could instead choose to play the hot cyber security market with an ETF. The PureFunds ISE Cyber Security ETF (NYSEArca: HACK) is the only ETF targeting the cyber security space. Its top three holdings are Infoblox (NYSE: BLOX), FireEye and Cisco (NASDAQ: CSCO)
Investing in trends can be akin to trying to pick up pennies in front of a train, in part because technology changes so quickly.
But we’re not talking about investing in the latest smartphone fad. The three trends above have much larger scopes. Don’t be surprised if companies with exposure to these three trends turn out to be strong investments for years to come.
The One Company Behind Every Smart Phone
Apple is expected to move over 80 million iPhones to market by the end of the year. We love Apple… yet we’re recommending a much less known company today. Because this company provides the technology that makes every smartphone possible. Without this tech, Apple’s most hyped iPhone would be just about worthless. What we like even more – shares of this company go up five times higher than AAPL shares… every time Apple launches a new iPhone. Click here for the full story.