HATE TECHS? TIME TO BUY

DRTE

I nibbled some DRTE (14.50) this morning. The company lowered guidance last night and the stock did not budge at all, on the contrary, it actually went up, indicating that the bad news is more than reflected in the stock already. Even with the lower guidance the stock appears very cheap, as it is trading at about 15X of its E05 and 12.7X of its E06, considering the company has a long term EPS growth rate of 20%. Its ROE is at about 16%, and book value at about 5.0. It has a clean balance sheet with no debt. I also like technology sector here simply because it is universally hated and ignored. Moreover, this little software company is catering to big pharms, another sector is pretty much universally hated. Sound good to me. Target: $20 by the end of this year.

GTK

I opened a position of GTK late today. I believe it has declined to a level that is under-valued. It is currently traded at 16X of its 05 EPS estimate and about 15X of its 06 estimate. That seems to be at the lower end of its historical multiple and also among its peers. Again it is considered a tech company, but it caters to the gaming industry, which is a stable and non-cyclical sector. I do like tech here as it is detested. There are significant insiders purchases at this level. The company has a modest top-line growth, but very consistent and impressive EPS growth. Its ROE is at over 30% and it generates a lot of free cash flow. Technically, it has been in the trading rage between 22-26 for a while. I believe the downside risk is limited and my target is $30 by the end of 05.