Investors looking to buy tech stocks in the UK aren’t exactly spoilt for choice. Indeed, in the technology hardware and equipment sector there are just eight companies with a market cap of over £100 million, for example.
However, despite there being a small pool of potential investments, the UK tech companies that are on offer have the potential to deliver strong gains in 2015 and beyond. As a result, the UK tech sector could prove to be great place to invest.
With that in mind, here are my top 3 tech stocks.
Although the growth rate in ARM’s (LSE: ARM) (NASDAQ: ARMH.US) bottom line is slowing somewhat, it remains a highly lucrative business with huge potential. For starters, its business model is focused on intellectual property (IP) rather than on manufacturing, which allows it to remain nimble and, to an extent, set the future direction of industry product development.
As a result, ARM’s growth rate should remain relatively consistent in future years and, although it will inevitably fall somewhat as the company becomes more mature, ARM is likely to maintain its status as a highly attractive growth play for some time to come.
With earnings growth forecasts of 14% in the current year and 22% next year equating to a price to earnings growth (PEG) ratio of just 1.3, ARM seems to offer growth at a reasonable price.
Set top box manufacturer Pace (LSE: PIC) is perhaps not an obvious choice for tech investors. After all, much of its focus has been on budget products as opposed to the latest technological innovations. Furthermore, with shares in the company having fallen by over a quarter since their 2014 high, sentiment in the company seems to be weak.
However, now could prove to be a great time to invest in Pace. That’s because the company is forecast to increase earnings by 14% in the current year, and by a further 8% next year. Both of these growth rates are impressive and yet shares in Pace do not trade at a premium to the wider market.
In fact, with a price to earnings (P/E) ratio of just 10.5, they are on offer at a substantial discount to the FTSE 100’s P/E ratio of 13.5. This equates to a PEG ratio of just 0.7 and means that Pace could see its share price rise in 2015 and beyond.
2014 has been a strong year for Imagination Tech (LSE: IMG), with shares in the silicon IP company rising by 14% since the turn of the year. However, there could be more to come and, although Imagination Tech is expected to see profit decline in the current year by 21%, it is expected to rebound strongly next year with earnings growth of 35%.
Indeed, Imagination Tech’s track record is much more volatile than that of ARM or Pace, with earnings having fluctuated significantly in recent years. So, while it could prove to be a less stable ride than ARM or Pace, investing in Imagination Tech could prove to be very worthwhile, too.
Moreover, with shares in the company trading on a PEG ratio of just 0.7, they seem to offer growth at a very reasonable price and could continue their strong recent performance into 2015 and beyond.
Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.