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The Aussie technology revolution happening right in front of your eyes

Investors’ hopes of seeing eight straight winning days were dashed yesterday, as the early share market rally petered out, with the S&P / ASX 200 index finishing 0.1% down.  As the bearish director of equities at Morgans, Tony Dennis told Fairfax Media…  “I think we are well and truly due for a pullback. It looks to me like this rally is over-extended. As we see more of the big stocks go ex-dividend, I think there’s a chance of a couple of hundred points pull-back [to] come in the not too distant future.”

Boo, Tony. Are you trying to spoil the party?  Oh, well, at least I may yet get my wish from last week for an opportunity to pick up some shares on the cheap.

If you missed the email, I wrote that I was taking some profits and building up a cash stake, so that I could deploy it into the quality stocks I have an eye on.  One place I won’t be looking is in the iron ore space.

Look out below Rio, Fortescue and BHP

The big miners Rio Tinto (ASX: RIO)BHP Billiton (ASX: BHP) and Fortescue Metals Group (ASX: FMG) all dropped yesterday , as iron ore continued its recent slide to fall below US$120 a tonne.  The commodity price has dropped more than 10% since the start of this year, officially entering ‘correction’ territory.  It seems weaker steel prices, booming supply and huge stockpiles at Chinese ports have combined to pull prices down.  And, it could have further to fall, with one Chinese iron ore trader predicting prices as low as US$110 a tonne.

News that at least two local Chinese governments have ordered steel companies to slash production by as much as 30% could be about to make matters worse.  It’s one of the reasons why we here at the Motley Fool have always favoured the more diversified BHP over Rio, given iron ore now makes up around 90% of Rio’s earnings.

But if iron ore prices fall below US$90 a tonne for an extended period of time, Motley Fool stock picker Scott Phillips may become more interested.  Scott has previously noted that resource stocks become much more interesting when marginal production costs are higher than the commodity price.  For Fortescue, Rio and BHP shareholders it could be a case of look out below.

From dirt and rocks to the great technology opportunity happening right now, on the ASX…

Now, moving away from the relatively unglamorous world of dirt and rocks to the much more exciting digital world…

Could 2014 be the year of the tech stocks, or is this a repeat of the dot-com bubble?

What many investors may have forgotten, is that during the dot-com boom and bust, from 1997 to roughly 2000, while many tech stocks burnt out like shooting stars, several internet companies established around that time also went on to become industry-dominating gorillas, including Google and Amazon.com.

Many experts criticised Google’s business models at the time, including author and investor Whitney Tilson, who said this of Google in 2004…   “Investors appear ready to value this company at as much as $36 billion, nearly 200 times trailing earnings! Google with the same market cap of McDonald’s (a stock I own)?! HA! I believe that it is virtually certain that Google’s stock will be highly disappointing to investors foolish enough to participate in its overhyped offering — you can hold me to that.”

Google’s market cap is currently US$407 billion, and has generated a return to investors of over 1,000% since then.  Sorry Whitney.

Another survivor was Amazon. Both Google and Amazon did not see any profit in their early years, as they focused on expanding their customer base as rapidly as possible.  But the rest is history. Amazon’s stock is up over 10,000% for Motley Fool Chairman and co-founder David Gardner.  That’s the great thing about technology stocks. The operational leverage means the share price gains for the winners can be truly life-changing events.

The Aussie technology revolution happening right in front of your eyes… and your portfolio

A quiet but growing ‘technology revolution’ is happening right here in Australia, and RIGHT NOW.  In the coming days, you’ll hear about an ASX-quoted tech stock one broker recently said could grow to a $10 billion company within five years.  Motley Fool Advisor Joe Magyer is on the same page, saying this company has “more raw upside potential than any other company on the ASX.”  Watch your in-box in the coming days.

Yes, Foolish readers… the Aussie economy is slowly but surely transforming from one dependent on mining, to one that can and will jump on the growing technology bandwagon.  We already have the usual suspects of Seek (ASX: SEK)REA Group (ASX: REA) and Carsales.com (ASX: CRZ) and some recent IPOs Freelancer (ASX: FLN) and OzForex (ASX: OFN).

Then we have Trademe (ASX: TME)iCar Asia (ASX: ICQ) which plans to become the Carsales.com of south-east Asia, iProperty Group (ASX: IPP) emulating REA Group, iBuy Group (ASX: IBY) and Nearmap (ASX: NEA).

Mobile payments is becoming a hot topic, and there are several Australian stocks which have seen their share prices soar in the past year or so, including Mint Wireless (ASX: MNW),  eServGlobal (ASX: ESV), and Mobile Embrace (ASX: MBE).

Then there’s also several software sellers including Infomedia (ASX: IFM) a company that develops spare parts software for car manufacturers, and Altium (ASX: ALU), which sells software to design electronic products such as printed circuit boards.  Not all those companies mentioned above will be the winners of the future. Some will crash and burn.

For those far-sighted investors willing to do their homework, meet with management, and ultimately take on a little more risk as part of a diversified portfolio, the opportunities are real, exciting, and endless.  Watch this space, Foolish dare-devils.

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Mike King has a position in iProperty Group, Nearmap Carsales.com and Seek.

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