Technology stocks have given back a significant portion of their gains generated over the last few years. The NASDAQ-100 Technology Sector Index has lost 8.50% since the beginning of the year, mainly owing to the recent broader market selloff. However, the tech sector still remains one of the best performing sectors and is likely to remain so in the years ahead. In the following article we will lay out a list of five tech stocks under $10 that might represent great winners in the upcoming years. However, it is worth noting that the share price of a stock in and of itself should not be given too much emphasis, it is the quality of the stock that really matters. Therefore, we will discuss the sentiment of the top money managers in the world on these cheap tech stocks, an important barometer that might provide useful insight about the upside potential of these stocks.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
5. PMC-Sierra Inc (NASDAQ:PMCS)
Investors with Long Positions (as of June 30): 27
Aggregate Value of Investors’ Holdings (as of June 30): $664.22 Million
The number of hedge funds monitored by Insider Monkey with stakes in PMC-Sierra Inc (NASDAQ:PMCS) at the end of the second quarter was up by four compared to the previous quarter. Nevertheless, the value of these stakes shrank by $60.41 million during this period. The shares of PMC-Sierra have lost over 31% since the beginning of the year, and it is hard to imagine that this stock was once trading at a price level of over $255 per share. The semiconductor and software company has been struggling in its carrier and storage end markets this year, but its management is endeavoring to reduce spending so as to stabilize the company. Just recently, George Soros’ Soros Fund Management reported an ownership stake of 10.69 million shares in PMC-Sierra Inc (NASDAQ:PMCS), which might indirectly hint at the attractiveness of the company’s stock.