As a group, technology stocks rode a wave of momentum going into 2010. The recovering economy and corporate profits are encouraging investors to reevaluate earlier dim prospects for top-line growth. Instead of expecting less, analysts on Wall Street are more often than not ratcheting up their estimates for profits and sales at tech companies.  So where in the broad technology universe do you focus your investing to find this growth? According to some of our Forbes investment newsletter gurus, opportunities abound in areas like data security, wireless handsets and services, corporate data centers and niche semiconductors.  Paul McWilliams, editor of Next Inning Technology Research, likes EZchip Semiconductor Ltd. (EZCH), a fabless semiconductor company that specializes in network processors. Its initial market target has been what's termed as CESR (Carrier Ethernet Switching and Routing). EZCH has since expanded its focus to include products that are broadly grouped into what's called the "access" market.  Between organic demand growth in the CESR market and expansion into the access markets, it is estimated the company will be addressing a total available market potential of about $1.5B by 2012. That implies substantial upside revenue potential for a company that will report somewhat less than $40 million in revenue for calendar 2009.  In 2010, EZCH will be shipping NP2 and NP3/NP3C network processors in volume to its CESR customer base. In addition to this, we'll also see the initial revenue generated from its next-generation CESR solution, the NP4 and its debut Access product, the NPAx. Notable production ramps for the NPA and NP4, which sells for roughly twice the price of a NP3, will begin in 2011. Revenue from its NP2 will likely peak in late 2010 or 2011 as Juniper winds down its demand and replaces the NP2 with an internally designed ASIC.  However, McWilliams believes this will be much more than offset with the ramp of the NP3 and NP3C, the latter of which is designed into various platforms at Cisco ( CSCO - news - people ), including its new ASR series edge router. With EZCH poised to post impressive growth in 2010, McWilliams thinks the upside potential here in 2010 and beyond is significant.  Paul McWilliams also favors PMC Sierra (PMCS), which was a high-flying star during the telecom boom of 1999-2000, but crashed as the bubble of demand burst in 2001. While it was rough sailing for PMCS for several years after this crash, the company recast its business and operating models and is now successfully focusing on high-growth markets where it could leverage its core differentiation.  The net result has been very impressive revenue growth and strategic penetration into markets such as FTTx, wireless back-haul, networking, storage and high-end printing. While PMCS fell 6% short of reporting a post-crash revenue record for calendar Q3 of 2009, it set a new post-crash non-GAAP operating profit margin record at 27.3%.  This tells us that during the last year PMCS has taken steps to notably improve the leverage provided by its operating model. Paul believes we'll continue to see strong growth from the market sectors noted above with very notable upsides generated by both PMCS' RISC processor business with Hewlett-Packard ( HPQ - news - people ) (high-end printers) as well as from its storage business where it sells products to virtually all the major tier one players.  Based on this view, even in McWilliams' most conservative model, this leads him to believe PMCS will report non-GAAP earnings in 2010 of $0.60, slightly above the current $0.57 consensus and aligned with the highest estimate provided by the 10 analysts covering the stock. In his estimation, when coupled with the net cash value listed on PMCS' balance sheet of $0.94 per fully diluted share, a year from now when we're looking at what he believes will be a notably higher estimate for PMCS forward earnings in 2011, he think PMCS will merit a fair value price that is somewhere in the mid-teens.  Richard Moroney, editor of Upside and Dow Theory Forecastsnewsletters, likes BMC Software ( BMC - news - people ), which develops products that run corporate data centers that house critical computer systems. BMC's long-term contracts sustained stable profits during the downturn. Over the next 12 months, results should benefit as clients resume spending on technology. Consensus estimates project per-share profits will advance 15% in fiscal 2010 ending March, and grow 14% annually over the next five years.  Recent acquisitions have bolstered BMC's promising segment for automating data-center activities. Large public companies comprise more than 85% of BMC's client list, and it is unlikely such companies will abandon cost-cutting initiatives once the environment improves. BMC trades at a discount to its three-year average P/E of 22 and five-year average of 27. If the P/E returned to the three-year average and BMC matched consensus profit estimates, the stock would trade at $58 next year. While that target seems a stretch, BMC seems fully capable of reaching $46 to $50. BMC is a Focus List Buy and a Long-Term Buy in the Dow Theory Forecasts model portfolio.  Another Richard Moroney tech pick: Sybase ( SY - news - people ), which makes enterprise software to manage data, including the messaging programs used by mobile-network operators. A number of strategic partnerships help Sybase compete against such industry heavyweights as Microsoft ( MSFT - news - people ), IBM ( IBM - news - people ) and Oracle ( ORCL - news - people ).  In fact, Sybase is one of few companies to generate organic sales growth from software licenses this year. Unlike traditional licensing models, messaging is typically paid by the transaction. That is an advantageous model considering that U.S. mobile subscribers now receive more SMS (short message service) messages than mobile voice calls. Sybase processes more than one billion messages each day. The database segment of Sybase provides a stable core business. Its leverage to wireless messaging offers an explosive growth kicker.  Reflecting rising free cash flow, Sybase's cash position has nearly doubled to $14 per share over the past year. While Sybase is no longer particularly cheap relative to peers, the stock seems capable of a move to $52 to $57 over the next 12 months. Sybase is a Best Buy in the Upside model portfolio.  ArcSight ( ARST - news - people ) is one tech stock that Jim Oberweis, editor of The Oberweis Report , says will do well in 2010. ArcSight's software collects and correlates user activity and event data across an enterprise so that businesses can rapidly identify and respond to compliance violations, policy breaches, cyber attacks and insider threats.  For example, if a user is logged in to the network from home and subsequently tries to enter the office by scanning his badge at the entrance, the software issues an alert. ArcSight's software was developed for the government, and its client list boasts 20 federal agencies. Corporations are adopting ArcSight to comply with data-security provisions of such laws as Sarbanes-Oxley and the health care privacy paperwork statute that goes by the acronym HIPAA.  Revenues in the three-month period ending Oct. 31, 2009, were up 38% from a year before, and earnings climbed 35%.  Gordon Pape, editor of The Canada Report, says Research in Motion ( RIMM - news - people ) is a buy. The share price of the maker of the BlackBerry smart phones looks cheap at current levels. While it's true RIMM faces growing competition from the Apple ( AAPL - news - people ) iPhone, the Palm Pre, the new Motorola ( MOT - news - people ) Droid and Google's ( GOOG - news - people ) own phone, Pape believes the competitive pressures will be more than offset by the recently announced move to sell the BlackBerry in China.  Plus the consumer market in North America and Europe is growing; the BlackBerry is no longer regarded as being primarily for business use. RIMM has excellent margins and is sitting on a ton of cash: $2.5 billion as of the end of the second quarter. The balance sheet is debt-free.  Paul McWilliams, Richard Moroney, Jim Oberweis and Gordon Pape may have positions in some of the securities mentioned in this article.
Technology stocks came back with a vengeance in 2009. Investment letter gurus are betting the tech party will continue.