Five Cheap Tech Stocks Poised to Gain

While the biotech industry still undergoing a correction that started in the second half of 2015, the technology sector has once again replaced it as the top destination for growth investor to park their money. Both these sectors performed extremely well in the period between 2012 and 2015. However, their performance started diverging in 2015 and has gone in completely opposite direction this year. Whereas the NASDAQ 100 Technology Sector has registered a gain of 15.28% so far in 2016, the NASDAQ Biotechnology Index is down 14.43% year-to-date.

With the outperformance that the technology sector is displaying, it’s natural that institutional investors are making a beeline for tech stocks, pushing their prices even higher. However, this has caused a problem for small investors, many of whom can’t afford to invest in a stock like Amazon.com, Inc., which trades for $780 per share currently.  To solve that problem for our readers, we at Insider Monkey decided to compile a list of tech stocks that are trading below $10 per share right now, but can significant upside going forward as they were quite popular among hedge funds covered by us going into the third quarter. In this post, we will take a look at the five stocks that topped our list and discuss how they have performed this year.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

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#5 Extreme Networks, Inc (NASDAQ:EXTR)

– Hedge Funds with Long Positions (as of June 30): 16

– Value of Hedge Funds’ Holdings (as of June 30): $47.41 Million

Let’s start with Extreme Networks, whose ownership among hedge funds covered by us remained unchanged during the second quarter, but the aggregate value of their holdings rose marginally by 1.6%. Though shares of the network infrastructure equipment provider took a beating at the beginning of 2016, they have managed to recoup all those losses since then and are currently trading up by 2.17% year-to-date. For its most recent quarter, the company reported EPS of $0.10, in-line with analysts’ expectation, and revenue of $141.89 million, which was $1.89 million above the estimates. On September 15, several analysts upped their price targets on the stock, including analysts at Wunderlich, who increased it to $6 from $5, reaffirming their ‘Buy’ rating.

#4 Bazaarvoice Inc (NASDAQ:BV)

– Hedge Funds with Long Positions (as of June 30): 17

– Value of Hedge Funds’ Holdings (as of June 30): $93.28 Million

Though the ownership of Bazaarvoice among hedge funds tracked by us inched down by one during the second quarter, the aggregate value of their positions jumped by 21.3% over the quarter. Bazaarvoice Inc (NASDAQ:BV)’s stock is currently trading up by 9.03% year-to-date, owing largely to the 19% rally it has since the beginning of this month after the company released its fiscal 2017 first quarter numbers. While analysts had expected the company to report a loss of $0.04 per share on revenue of $48.97 million for the quarter, Bazaarvoice declared flat EPS on revenue of $50.1 million. On September 12, analysts at B. Riley reiterated their ‘Buy’ rating and $8 price target on the stock, which represents a potential upside of 61.6% from its current price.

#3 Zynga Inc (NASDAQ:ZNGA)

– Hedge Funds with Long Positions (as of June 30): 20

– Value of Hedge Funds’ Holdings (as of June 30): $398.32 Million

Moving on, once-famous social game developer Zynga saw an increase in popularity among the funds covered by us during the second quarter, with its ownership among them climbing up by three and the aggregate value of their holdings in it rising by 25%. Investors that initiated a stake in the company during the second quarter, included Jacob Gottlieb‘s Visium Asset Management and Ross Margolies‘ Stelliam Investment Management. While Zynga Inc (NASDAQ:ZNGA)’s stock has appreciated by 8.58% so far this year, it is finding it difficult to break above the $3 mark. The stock sold off last month after the company reported mixed quarterly numbers despite its mobile game CSR2 becoming a hit. Following the release of the second-quarter results, analysts who track the stock are divided about its future trajectory with some even calling it a ‘permanent short’. The stock currently sports an average rating of ‘Hold’ and a consensus price target of $3.17 from the 16 leading analysts and research firms that cover it.

#2 Globalstar, Inc. (NYSEMKT:GSAT)

– Hedge Funds with Long Positions (as of June 30): 20

– Value of Hedge Funds’ Holdings (as of June 30): $113.41 Million

The number of hedge funds covered by us that were long in Globalstar increased by five during the second quarter, but the aggregate value of their stakes in the company slid by 30.7%. Shares of the mobile satellite services provider have been extremely volatile this year, trading in the range of $1 to $3. At the end of last month, the stock spiked by 7.2% after the company announced a strategic deal with Carmanah Technologies, under the terms of which the latter will collaborate with Globalstar on the design of solar-powered machine-to-machine solutions. On September 13, a day after Microsoft Corporation (NASDAQ:MSFT) submitted an ex-parte filing with SEC that pointed towards problems in tests of Globalstar’s TLPS technology, Globalstar, Inc. (NYSEMKT:GSAT) revealed that it had begun alpha testing of its long-in-the-making next-generation satellite Wi-Fi hotspot, Sat-Fi2 duplex device, which will allow users to use smartphones and tablets beyond cellular connections.

#1 Frontier Communications Corp (NASDAQ:FTR)

– Hedge Funds with Long Positions (as of June 30): 25

– Value of Hedge Funds’ Holdings (as of June 30): $215.84 Million

Amid a 11.6% drop in Frontier Communications Corp (NASDAQ:FTR)’s stock during the second quarter, the ownership of the company among funds covered by us inched down by two and the aggregate value of their holdings fell by 28.7%. Frontier Communications Corp (NASDAQ:FTR)’s stock saw a major up move in late-February after the company reported its results for the fourth quarter of fiscal 2015. However, it has been on gradual decline since May and currently trades down by 8.15% year-to-date. The company currently pays a quarterly dividend of $0.105 per share, which translates into a lucrative annual dividend yield of almost 9.81%. On September 12, the company announced R. Perley McBride as its new chief financial officer, succeeding John Jureller. For its fiscal 2016 third-quarter, analysts are expecting Frontier Communications Corp to report a loss of $0.03 per share on revenue of $2.58 billion. For the same quarter of the previous year, the company had reported EPS of $0.03 on revenue of $1.42 billion.

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