Don't overlook these tech stock winners in tough quarter

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For investors in big technology companies, it’s been a difficult and painful third-quarter earnings season. IBM (IBM), Google (GOOGL), Samsung (005930.KS), Twitter (TWTR), Amazon (AMZN) – the list of disappointments seems almost endless.

But while big companies struggled to find growth, some smaller tech companies were stealing it away.

Take NetSuite (N), for example. The software vendor focuses on selling more nimble cloud-based finance and commerce apps that grab sales away from traditional software sales at giants like SAP (SAP) or Microsoft (MSFT). Third quarter revenue increased 34% from a year ago and billings, which give a peek into future revenue, increased 41%. Adjusted earnings per share of 11 cents almost tripled the 4-cent average expected by Wall Street analysts.

The stock is up almost 15% since the earnings report, closing at $105.91 on Tuesday, though still well below its high for the year of $120.77 hit back in February. Many investors, and reporters, appeared to have let NetSuite drop off their radar after some disappointments in the spring. Now it's probably a good idea to start paying attention again.

Another winning disrupter is fiber-optic equipment maker Infinera (INFN). The company’s leading-edge technology is grabbing sales from older vendors such as Ciena (CIEN) and Alcatel-Lucent (ALU). The stock jumped 25% last week after third-quarter earnings came in well above expectations and guidance for the rest of the year impressed. After seeing the strong quarter, Wall Street analysts more than doubled EPS estimates for the fourth quarter while hiking 2015 estimates 23%.

Apple (AAPL) was one of the few big tech stocks that didn’t disappoint, as its new iPhones got off to a great start, selling 10 million in the first weekend – and that was before sales kicked off in China. But moving the needle on the $600 billion-plus company isn’t easy -- the stock is up only 7% since the earnings report.

Some of Apple’s suppliers are also benefitting from the big iPhone upgrade cycle this year and they have a bit more room to run.

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Skyworks Solutions (SWKS) makes the cellular radios in the new iPhones. Analysts say they’ve grabbed a larger share of chips in this year’s models than they had in the older iPhone 5S. Quarterly results beat analyst expectations for adjusted earnings per share and revenue and the company’s forecast is for strong growth ahead. The company is projecting a 51% sales increase for next quarter.

Broadcom (BRCM) makes Wi-fi and Bluetooth chips for the iPhone. That’s been a tough business, but revenue increased 5% to $2.26 billion, and adjusted earnings per share of 91 cents beat Wall Street expectations of 84 cents.

Broadcom still may have some management issues, however. The adjusted earnings excluded a charge of 19 cents a share to get out of the cellular chip business and another 33 cents to write down the value of intangible assets acquired in M&A dealings. Analysts worry that sales won’t grow much next year, especially if rising iPhone sales displace sales of phones from other Broadcom customers.

Finally, a company that got out of Apple’s path was a winner: Nokia (NOK). The company dumped its money-losing phone business on Microsoft and is using the $7 billion garnered in the sale to expand its telecommunications equipment sales. Thanks to big network spending by Sprint (S) and T-Mobile (TMUS), among others, Nokia reported its first year-over-year increase in revenue in three years.

To be sure, small-cap stocks like those mentioned above tend to be more volatile than larger-cap names, especially when the overall stock market takes a dive. The Russell 2000 Index (^RUT) of small-cap stocks lost almost 13% from the end of August to its Oct. 15 low, for example, while the large cap S&P 500 Index declined only 8% over the same period. The Russell 2000 has since regained most of the loss, rising 11%, as has the S&P, up 7%. And some of the recent third-quarter winners were losers not that long ago – in fast moving tech segments, one wrong move can crush a smaller company.

But for now, at least, investors still have some promising tech candidates to consider.

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