Tech Stocks to Buy in 2014: This One's a Doozy

After perusing all the displays at the massive Consumer Electronics Show in Las Vegas earlier this month, tech-sector pundits began touting ultra-high-definition television (UHDTV) as one of the next big "breakout" technologies for 2014.

This wasn't a surprise to you.

Back in August, we said that specialty microchip maker Ambarella Inc. (Nasdaq: AMBA) would be a major beneficiary of the UHDTV surge and predicted the stock could double in just over two years.

It actually took only five months, and we now believe it will double again.

But we also know this isn't the only company benefitting from the powerful shift toward the new UHDTV standard - and so we set out to find the "next Ambarella."

Last week, we found it.

The stock we discovered is about to be ignited by two powerful catalysts - the multi-billion-dollar shift to UHDTV and a shrewd strategic shift that's going to twist open the profit spigot.

It's a stock we believe could easily double from here, making it one of the best tech stocks to buy in 2014.

And today we're going to show you all that you need to know to pocket every penny of those gains...

The shift from the current HDTV standard to the new UHDTV opportunity is one of the most exciting things to hit television in years.

This technology also is known as "4K" because these new, sharper-definition TV sets display 4,000 horizontal lines of video, making them roughly four times sharper than the images displayed on current HDTVs.

The Consumer Electronics Association - the trade group that runs CES - predicted that just 23,000 UHDTVs would be sold in the U.S. market in 2013. But that figure will soar to 1.43 million sets, or roughly 5% of TVs sold nationally, by the end of 2016 - a 60-fold increase.

NPD DisplaySearch has an even more aggressive outlook and sees nearly a sevenfold increase next year alone. NPD estimates that sales came in at 1.9 million for 2013 and predicts that sales will rise to 12.7 million in 2014.

And by 2017, UHDTVs will account for nearly one-fourth of all televisions of greater than 50 inches sold in the U.S. market, NPD projects.

But there's a problem.

You see, the UHDTV revolution presents us with a classic "chicken-or-the-egg" quandary. Before consumers will buy these new TVs - which are still pretty expensive - there has to be content to display on them.

But before the "content creators" - the studios, the sports broadcasters, and even cool new ventures like online video giant Netflix Inc. (Nasdaq: NFLX) - will create the needed new programming, they'll want to know there's an audience to view it.

This latter obstacle isn't a small one. Filming content in 4K will require broadcasters to make a massive investment in new cameras, recording equipment, displays, and all the support gear and software needed to run it.

Consider the case of Discovery Communications Inc. (Nasdaq: DISCA), the world's leading creator of documentary-style content. The company recently said it wants to upgrade to 4K for shows it runs on such networks as the Discovery Channel, TLC, Animal Planet, and Science.

The Discovery Channel was an early backer of the current HD format, and the company believes its visually rich shows are perfectly suited for the new 4K standard.

However, Discovery officials don't want to take the large and bulky ultra-HD cameras out to remote locales like the Amazon or Alaska's Bering Sea, the setting for its hit commercial-fishing drama Deadliest Catch.

What Discovery and broadcasters really need is some sort of temporary solution that will serve as a "bridge" between their current HD cameras and all that costly new gear they'll have to have to film and broadcast in the 4K format that will come to life on the new UHDTVs.

Given the outlays involved, we knew someone would solve that interim problem.

And Ericsson (Nasdaq ADR: ERIC), the Swedish telecom giant that's engineering a corporate turnaround of its own, was the one to pull it off.

Long known as a maker of networking gear for the mobile-telecommunications industry, Ericsson also focuses on the broadcast and media sectors with an array of video-processing equipment and related products.

And to capitalize on the 4K market, Ericsson recently developed a specialized audio/video platform. It's built on an advanced processing chip that Ericsson designed specially to serve the TV broadcast industry.

The rack-mounted "black-box" device allows production firms to use either standard-definition or HD TV cameras and supercharges those signals into the ultra-sharp UHDTV video format.

Ericsson says it's already proved that this "converter box" is ready for primetime. All last year, in fact, the Stockholm-based company participated in numerous live trials held throughout the world.

These tests included multi-camera productions, proving that its 4K consoles can support the simultaneous audio-and-video streams that are standard fare in the professional broadcast market.

And make no mistake: There's a big, big opportunity here. In the U.S. market alone, TV production equipment is a $35 billion business, says market researcher IBIS World. Any company that can help a broadcaster stretch a dollar by extending the useful life of already purchased cameras, recording gear, and the supporting equipment and software is going to find an enthusiastic customer base.

And this 4K TV opportunity can act as an additional boost for Ericsson's network-infrastructure equipment. Right now, 40% of the world's mobile traffic runs through networks that use Ericsson gear. When you add up all the wired broadband networks in which it's involved, Ericsson says it supports 2.5 billion web users around the world.

If you think about it, there are some very intriguing synergies between these two Ericsson businesses. Because 4K images are so much richer, UHDTV will pressure broadband providers to upgrade their network to handle all that super-sharp-resolution video. So that means the company should see a ramp-up in orders for its networking gear.

Just to be clear here, 4K isn't some Silicon Valley "vaporware" that will never make a market splash.

Indeed, the afore-mentioned Netflix already sees the profit potential behind UHDTV.

Beginning next month, Netflix will broadcast the second season of its award-winning House of Cards original TV series in the new format. In fact, Netflix has already formed an alliance of TV set manufacturers to support its broadcasts. Firms like Korea's LG or Japan's Sony Corp. (NYSE ADR: SNE) are going to install special digital "decoders" that will enable their monitors to display 4K-quality video.

And given Netflix's growing stature, other content creators are going to have to follow suit to keep from being left behind.

All of this adds up into a hefty growth opportunity for Ericsson.

But as we told you at the start, there's a second catalyst for the stock - which we believe can provide some additional oomph.

We're referring to the corporate restructuring the company is already working through.

Ericsson's entry into 4K comes after the company has exited two mobile-sector joint ventures (JVs) that went off the tracks.

In the first one, which dates back to 2001, Ericsson joined forces with consumer-electronics powerhouse Sony. With high hopes, each company invested the equivalent of $370 million at today's exchange rates.

Unfortunately, Sony Ericsson was never more than an also-ran. By the time Sony bought the full business in 2011 for roughly $1.5 billion, the duo's phones accounted for just 1.7% of the global handset market - only half the market share the JV had boasted the year before.

In 2009, Ericsson hooked up with STMicroelectronics NV (NYSE ADR: STM) - Europe's No. 1 chipmaker - to produce semiconductors for the wireless market. Launched in 2009, this also was ill-fated.

The two firms focused on low-cost feature phones but the market quickly moved toward the smartphones that can surf the wireless web, capture photos and video, and run hundreds of apps.

Smartphone sales subsequently zoomed: According to market-researcher IDC, smartphones will grow from about 40% of the wireless market at the end of 2012 to more than 60% by the end of next year.

Faced with that dooming market shift, STMicro and Ericsson unwound the joint venture.

The good news is that Ericsson can now focus on the growth markets for 4K video, and those for wireless and wired networks.

Although the company has a current market cap of $38 billion, its stock sells for just $12 a share. That's not just a low price; it's also a cheap price: Ericsson trades at just 14 times forward earnings, even though the firm grew profits in last year's third quarter by 36%.

And it has the fuel to maintain that growth: Ericsson has a portfolio containing an estimated 33,000 high-tech patents and also has $5.2 billion of cash on hand.

Now that Ericsson has cleaned up its balance sheet and dumped its money-losing joint ventures, I think the stock could double from here - and go even higher from there.

Don't forget, this is a stock that was trading at $42 a share as recently as January 2007. And today it's a much-healthier and better-focused company - with UHDTV, the "mobile revolution," and a shrewd corporate overhaul providing a brisk tailwind.

We'll get an even better sense of how well Ericsson is doing when it reports its fourth-quarter and full-year results on Jan. 30.

You can rest assured that I have plugged Ericsson into my own "black box" and will be tracking its progress from here.

And if the company continues to improve as I expect, you will be able to boast about having doubled your money in two "4K" stocks - long before most retail investors even see what's happening here.

But keeping you ahead of the high-tech curve and finding the best tech stocks to buy is Job One at Strategic Tech Investor. It's a job that I enjoy... and also take a lot of pride in.

[Editor's Note: In Tuesday's Strategic Tech Investor, we told you we had a great new profit play for you. And today we believe we kept our promise. But it doesn't stop here. And if you want to see what else I'm working on, check this out.]