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Following a springtime of market madness, technology stocks have been well and truly battered during the rest of the past year, with the techMARK 100, the benchmark Footsie technology index, losing 3227.5. Ben Cobley spoke to the leading technology analysts to find out what's in store for 2001.

Many analysts believe that the punishment meted out to technology stocks has been indiscriminate and knee-jerk in character. According to Beeson Gregory's head of research Alan Matthews, 'there are some much better opportunities now than there were a year ago'. Teather & Greenwood's Guy Feld agrees, commenting that 'there are lots of opportunities for the discerning investor'.

According to Feld, investors should look for 'quality fundamentals and management', but also specific sectors and themes. Such is the common refrain from the broking houses - everyone has his or her favourites, both in terms of companies and specific sectors. Feld himself picks out the healthcare-IT sector as warranting particular attention, adding that 'hospitals and healthcare are made for IT'. Among the companies set to benefit are Misys, Torex and iSoft. Also of interest according to him are educational IT solutions firm RM and the 'very cheap' knowledge management company Cedar Group.

Knowledge management

Matthews points out that Beeson is 'pretty keen' on the knowledge management sector as a whole, with Autonomy and house-backed newcomer Orbital Software particularly interesting. However, at the 'top of the list' for Matthews is techMARK September entrant, chip developer ARC International, whose strength in intellectual property and immunity to the semiconductor cycle make it attractive. On Aim, Matthews pinpoints two financial sector software developers: Focus Solutions and Wealth Management Software (Beeson Gregory is nominated broker for both of these).

Lorne Daniel of Seymour Pierce paints a pretty grim picture for the telecommunications sector. He refers to the 'nightmare' experienced by such companies, especially the smaller ones, in trying to obtain further funding. He concludes that this, allied to the great difficulties in achieving any worthwhile profit margins in what is a highly competitive marketplace, means that the sector is once again 'not going to have a good year'. Others concur about this at least, with the funding issue foremost in many minds. Alan Matthews, for example, expects the sector as a whole to 'carry on reeling', though, unlike Daniel, he believes that it is the smaller, more nimble operators that are best positioned to cut through, pointing out PNC Tele.com as one to watch.

Biotech stocks have had a rather good year in 2000 and, according to Jemima Thorpe at Seymour Pierce, 2001 is going to be another 'exciting' one. Many new players and mergers are expected with the added prospect of plenty of new products coming to market. According to Thorpe, Aim holds two of the more interesting plays in the form of Proteome Sciences and Fulcrum Pharmaceuticals. Of the market newcomers, one to watch is the 'visionary' biotech incubator, World Life Sciences, which Thorpe singles out as 'the ultimate penny stock'. World Life has invested IR£1.3 million in Irish genomics firm EiRx, having raised £5 million for its Aim listing on 22 November.

On the same theme, Matthews also expects a quite substantial amount of consolidation to occur in the biotech sphere during the coming year, adding that 'the fundamental basis of the industry is much more stable'.

Matthews expects techMARK to make a recovery during the year, though he suspects the index is in for 'a difficult first quarter'. Lorne Daniel at Seymour Pierce sounds a rather more bullish note, saying 'we very much think that we are leaving the technology problems behind', adding that much of the past year's turbulence can be put down to over-optimistic profits forecasts that were unlikely to be met in the first place. He also points out that many software and internet plays were rushed to market with only one product and 'won't survive without diversification or consolidation'.

On a more downcast note, Anthony Miller of software and IT specialist Richard Holway refuses to be drawn into the cautious spirit of optimism, saying that many stocks 'could easily fall another 25 per cent and at worse 50 per cent'. This message springs from a belief that investors should 'learn from history' in that prices normally eventually settle down at about 20 times earnings per share.

This story is from Growth Company Investor, the independent voice on fast-growing companies. Subscribe today for the latest AIM recommendations.