Aussie tech stocks emerging but investors need to take care

There are more tech stocks available to Australian sharemarket investors but it’s important to choose carefully before buying up.

A Sydney Silicon Valley is being planned, but for sharemarket investors Australia has yet to build a thriving technology sector.

While we have a few tech titans including $45 billion US-listed group Atlassian and the $8.7 billion Afterpay Touch, technology stocks account for less than 3 per cent of ASX-listed firms.

Contrast this with the US where four of the five biggest companies there — Facebook, Apple, Amazon and Alphabet (Google) — are tech giants, along with fellow FAANG group member Netflix.

Local demand is intense, but Wealth Within chief analyst Dale Gillham said Aussie tech fortune-seekers should tread carefully.

“With the success of the technology sector in the US — especially with the FAANG stocks, more Australians are looking at our tech stocks, trying to grab a bargain and hoping to make a fortune,” he said.

“What most Australians don’t realise is that they are playing in a minefield that is very much hit-and-miss.

“Indeed, if you want to take a punt on tech stocks, do so with the expectation that you will more than likely lose your money. Therefore, I suggest you only punt with what you can afford to lose.”

The art of finding a good tech stock was the same as for any other, Mr Gillham said.

“The company must have a good product, good management and solid revenue streams. If it doesn’t, then you are gambling.”

Sharemarket investors are increasingly turning to investing in technology stocks.

Cloud accounting firm Xero and broadbased software provider Technology One were classic liquid tech stocks that ticked the boxes, he said.

Mr Gillham also likes investment services firm Computershare and fintech players Iress and Praemium, and sees promise in aerial imagery firm Nearmap and data centre operator Next DC.

Phil Usher, the director of the stock market training hub Cheeky Investor, said a great place for tech was the software as a service category.

Past performers such Atlassian fit this, as did Xero, which has soared, he said.

Mr Usher said cloud-based software player Wisetech was strong.

“They’ve got very, very minimal debt which is always good, so they can use expansion,” he said.

“They’ve got close to 300 million available in cash, so that means they’ve got a lot of opportunities,” he said, but advised allocating less than 5 per cent of your portfolio to Wisetech.

“Keep it as a growth play.”

Another up-and-coming stock is money management firm Netwealth.

Mr Usher said this business, which provided software to financial advisers, was up 60 per cent in just two years and expected to grow another 20 per cent a year.

“I don’t think they’ve really scratched the surface,” he said.

MORE AUSSIE TECH STOCKS TO WATCH

* Compumedics (CMP) develops sleep disorder diagnosis technology.

* Cashwerkz (CWZ) helps investors chase maximum-term deposit account yield.

* FBR (FBR) deploys a robot that builds the walls of a house in a day.

* Dubber (DUB) claims to be shaking up the global telco industry.

* Whispir (WSP) has disrupted the workflow communications space, winning clients like Disney.

Originally published as Aussie tech stocks emerging but investors need to take care