Compared to more “traditional” businesses, tech stocks can change in the blink of an eye through an acquisition, by moving into a new area or by exporting the business model overseas. Their prospects can also take a turn for the worse in the blink of an eye!
That’s why I have a separate watchlist dedicated to ASX-listed tech stocks, and the companies below are all on it.
So what are the top reasons that make these stocks worth keeping an eye on in 2016?
The proven performers
There is something of a misconception among some investors that being a “tech stock” means that a company is not profitable or is new.
But REA Group Limited (ASX: REA) doesn’t fit either of these criteria, having been around over two decades, and recording strong profits along the way.
REA Group has a clear plan to leverage the lessons from its dominant Realestate.com.au portal in Australia to its digital real estate advertising assets in the United States, China, France, Germany, Luxembourg and Italy.
Similarly, Carsales.com Ltd (ASX: CAR) has been a standout performer that arrived at precisely the right time to capture the market for car advertising as it moved from print classifieds to digital.
Carsales has also flagged its intention to build its affiliates in South Korea, Brazil, Chile and Mexico. In addition, it is expanding into areas adjacent to its core car selling position, including tyre sales and vehicle finance.
The global aspirants
XERO FP NZ (ASX: XRO) has gone from creating the market for cloud-based accounting software to dominating that niche in New Zealand and Australia, while growing its market share strongly in the UK and entering the US.
It has attracted investment from Silicon Valley heavyweights, but is also up against stiff competition from global players like Intuit who are aggressively playing catch up in the space.
Freelancer Ltd (ASX: FLN) did not create job outsourcing, but it has acquired many of its competitors on its way to becoming one of the largest online outsourcing networks of its kind.
Two powerful factors drive Freelancer’s growth: the ongoing connection to the internet of low-cost workers in emerging markets, and the increasing proportion of industries, from app developers to accountants, who are willing to outsource their operations.
Small but lots of potential
One of the most attractive features of a tech company is its ability to serve many more clients with rapid speed and minimal need for additional investment.
CogState Limited (ASX: CGS) is one example of a company that exemplifies this. Cogstate provides solutions to the world’s largest pharmaceutical companies that help them to get more accurate results from their drug trials.
Cogstate does this by designing, testing and marketing computerised tests that measure cognitive changes and impairment in patients. So if drug company A has a drug it believes improves memory by 20%, Cogstate can provide the testing software that will help that company independently and accurately measure that claim among its trial patients.
Cogstate has proven its efficacy, with 16 of the top-25 largest pharmaceutical companies in the world on its client list.
Hansen Technologies Limited (ASX: HSN) is ASX-listed proof of the maxim that “boring is beautiful”. Hansen provides other companies the software that lets them bill their clients. Utility companies, cable television companies as well as phone and internet providers are all clients of Hansen.
Its shares are up over 50% in the past 12 months, and with operations in over 40 countries, Hansen could certainly continue to grow into the future on the basis of its simple, clean business model that lets it earn recurring revenues.
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Motley Fool contributor Ry Padarath owns shares of Xero. The Motley Fool Australia owns shares of Hansen Technologies and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.