Information technology stocks have made some investors quite wealthy in the past. Companies like Apple and Microsoft were the first big wave and now Facebook, Twitter and others are using social media and cloud computing to go the next step.
It can be hard to see which younger companies could be the next winners, but while you are scouring the small-cap stocks, keep in mind the Australian companies that are already making a name for themselves. Along with the growing junior companies, the larger ones still have a lot to offer.
Here are four IT stocks that investors should know and follow. They offer a mix of earnings growth, exposure to big markets and most of all that opportunity to expand into market-leading positions.
1) Computershare Limited (ASX: CPU)
The company provides stock exchange share registration and transfer agency services, so when investors buy and sell shares, it handles the record keeping of transactions and change of ownership. As the stock market goes up and trading volumes rise, its business rises as well. It also operates overseas in big financial market countries like the US.
2) Carsales.com Ltd (ASX: CRZ)
This is one IT company that many people use on an everyday basis to buy and sell cars. The website is the leading car sales portal and has almost doubled net profits to $83.5 million in the past three years.
You don't have to be a tech whiz to understand the popularity and strength of the company. It is now expanding overseas, investing in established car sales websites in South East Asia, South Korea and Brazil – all highly populated countries with growing auto markets.
3) IRESS Limited (ASX: IRE)
Share trading and wealth management software platforms are this company's special service. Many financial advisors and wealth managers use its XPLAN platform to manage customers' investment funds and superannuation. It has operations in the US and UK and is establishing its services as a leading IT solution for wealth creation.
4) XERO FPO Limited (ASX: XRO)
This online accounting and business services IT platform operator has taken the market by storm. What started out in late 2012 as roughly a $5 stock soon rose to as much as $42.96 by early 2014. It uses cloud computing and mobile technology to give business managers and accountants on-the-go application usability that is completely on the web.
This is challenging such standard platforms as MYOB and shaking up the market. It is expanding into bigger markets like the US where there are more growth opportunities. It hasn't made a profit yet, but that is because it is plowing a lot of its funds into growth and development. Investors will need to weigh that balance of growth potential to earnings generation.
