E-BUSINESS SPECIAL REPORT
Tech Stocks To Watch in 2002

Many technology companies thought 2001 was a tough year, but compared with today's devalued Dow and spooked investors last year may turn out to be a fond memory.

Amid spectacular telecommunications flameouts, ISP (Internet service provider) collapses and disclosed losses in the billions, not millions, it is easy to see why potential investors might be wary about investing in tech stocks.

But according to some analysts, there are still a few tech companies that are good bets for the future. All investors need to do is play it safe -- and perhaps follow the SEC as it rolls across the Internet economy.

Techno Beat

A few years ago it was all the rage to invest in tech companies that seemed fresh and exciting, with funky names like Razorfish or monikers like Pets.com.

The time for gambling is over. A craving for stability has become evident, and investors are going with larger, more established firms that have an iron grip on their markets.

"You have to look at the bigger players," Giga Information Group research fellow Rob Enderle told the E-Commerce Times. "For example, Microsoft (Nasdaq: MSFT) remains a solid firm that's outperforming everybody. That's a pretty solid investment."

Enderle also noted that Dell (Nasdaq: DELL) has kept its head above waters that threatened to drown firms like Intel (Nasdaq: INTC).

Area of Study

When studying the breadth of battered tech stocks, it is important to note which areas have been less damaged, according to Enderle.

"It's a good idea to look at strong sectors, like the security space," he said.

Other strong, seemingly dependable sectors include data storage and, to a lesser extent, online travel.

For example, Expedia's (Nasdaq: EXPE) income nearly doubled in the second quarter, and the company appears poised to be the top player in the online travel arena. Its revenue rose 85 percent to $145 million, with net income increasing 94 percent to $29.3 million.

But despite Expedia's growth -- and optimism about the online travel sector in general -- the company's shares are falling, possibly heralding a change in the sector, from rebound darling to potential loser.

Future Think

Even among companies that are not yet public, a practical business plan like the one used by Netflix (Nasdaq: NFLX) can go a long way toward building confidence, analysts said.

And, of course, market leadership can be a convincing factor.

"If I could invest in a company, it would have to be Google," Forrester Research analyst Harley Manning told the E-Commerce Times. "I don't know if they'll ever go public and I'm not allowed to invest anyway; but if I were and they had an IPO, it would be a great investment."

The trick, Manning said, is to find a company that is focused on one thing and does it well.

Opening the Closet

Even within a strong sector, it is important to pay attention to individual companies' strengths and weaknesses.

For example, Enderle noted that there have been problems with security industry giant Network Associates (NYSE: NET).

"On the other hand there are other top companies, like Symantec (Nasdaq: SYMC), that look good," he said. "Of course, the SEC hasn't looked at them yet, so I would hold off until that happens. You almost want a blessing by the SEC before being sure."

Like cars that follow a snowplow in hopes of finding a smoother path, some investors may want to think about simply following the SEC and investing in companies that have been cleared of wrongdoing.

"It's kind of like a horror movie," Enderle said. "You want someone else to open that closet door and find the skeleton."