How to pick winning tech stocks?

UOBKayHian: Apart from the bottom-line earnings of a tech company that belong to shareholders, R&D also belongs to them. Investors are interested in both earnings as reported, representing today’s return on investment and spending on R&D as well as tomorrow’s return on investment.This concept was named by Michael Murphy as Growth Flow equals EPS plus R&D per share. When we pick the tech stocks, we can look at the price/growth-flow (PGF) ratio. PGF identifies stocks that may be very cheep on underlying investment value even when reported earnings are depressed temporarily or when the price looks high based on earnings alone.

PGF is chosen to pick tech stocks because R&D spending is more stable than earnings. When earnings are depressed, the PE usually looks uncomfortably high at any reasonable price, so the stock tends to weaken or trade in ranges until the company gets its earnings growing again. Because Growth Flow adds R&D to earnings, it is more stable than earnings alone. When stocks drop due to disappointing earnings, they will look cheap on PGF before they look cheap on PE. After the R&D pays off in new products, accelerating revenues and recovering earnings will propel the stock.The tech company is worth a look if the PGF is smaller than PE.

MyTake: Curiously, I sorted out the Bursa's Tech Stocks according to PGF/PE in ascending order for your reference. From the analysis above, I noted on average, Malaysian tech companies spend very little on their R&D and Patent Fees compared to their share capital in percentage terms. With such little capital expenditure, no wonder our country does not produce any notable world beater in technology. The best among the companies are AKN with a score of 0.99664 and GPacket scored a miserable 0.99925. This are very pale figures if compare with HK listed Tech stocks egs ASM Pacific Tech at 0.799, Lenovo at 0.837 and Alibaba.com at 0.909 I have not even compare the Malaysian tech stocks with Singapore/Taiwan/South Korea stocks. See the differences why we can't go global yet?