On the face of it, can-ada’s high-tech stock subindex has vastly outperformed the broader stock market indices so far this year. However, the S&P/TSX information technology subindex is becoming less relevant as a measure of the technology sector.

As of Oct. 5, the IT subindex soared 46.3% from yearend 2006 compared with a relatively pedestrian 10.3% jump in the S&P/TSX composite index in the same period. But this is because Waterloo, Ont.-based Research in Motion Ltd. now accounts for 71.4% of the subindex’s total value, following a 124.7% jump in its share price year-to-date.

Four of the remaining nine stocks included in the IT subin-dex have registered losses so far this year, while only two posted solid gains. More to the point, none of the subindex’s members enjoy rock-solid support from analysts. Even one analyst in every three believes RIM is overvalued.

As a result, some of the best bets in high-tech now appear to lie within a group of smaller Canadian mid-cap firms, which have market capitalizations between $250 million and $760 million. An Investment Executive analysis of these firms found three worth considering.

Two of the top picks are companies with solid, long-term prospects but beaten-down share prices: Cambridge, Ont.-based Com Dev International Ltd. and Ottawa-based Wi-Lan Inc. The third, Vancouver-based Absolute Software Corp. , has already seen its share price escalate sharply in value this year, but it is considered a prime takeover candidate.

Here is a closer look at the firms:

> Com Dev International Ltd. The least risky of the three, Com Dev is a supplier of components and modules for communications satellites. Although the business of building satellites is relatively mature, analysts are bullish because the industry is moving into one of its periodic growth phases.

The capacity of satellites now orbiting the earth is swiftly being chewed up by new applications, such as high-definition television, satellite radio and automobiles. Not only that, but the satellites launched in such great numbers during the tech boom of the late 1990s are reaching the end of their 10- to 15-year life expectancy, according to a Sept. 28 report written by Desjardins Securities Inc. analyst Ben Jekic in Toronto.

As satellites take roughly three years to build, communications service providers are now preparing to place new orders. Roughly 100 satellites a year are expected to be launched over the next decade. Com Dev’s signal processors, switches and other components have already been installed on more than 600 satellites, positioning the company to take advantage of an industry rebound.

Indeed, the company’s order backlog has risen in eight of the past nine quarters and stood at a record $135 million, equal to about 80% of annual sales, at the end of the third quarter ended July 31, vs $105 million a year earlier. The only disappointment from the third quarter was the negative impact of the strong Canadian dollar. Com Dev generates most of its sales in the U.S. but reports in C$.

The weaker U.S. dollar reduced third-quarter sales by $1.8 million more than expected (4% of the total), notes Robert Winslow, an analyst with Wellington West Capital Markets Inc. , in a Sept. 14 report. Currency shifts also trimmed profits by 3¢ a share — to 4¢ from 7¢. This has been a key factor in the softening of Com Dev’s share price, which closed at $5.19 on Oct. 5 after approaching $7 in December 2006.

However, Winslow believes the strength of the market for satellites will more than make up for the impact of a strong C$ in the years to come. He predicts revenue will jump 14% to $192.5 million in the fiscal year ending Oct. 31, 2008, vs an estimated $168.9 million in fiscal 2007, while earnings will rise 65% to 28¢ a share in fiscal 2008 vs 17¢ a share in 2007.

Jekic is more bullish. He predicts Com Dev’s revenue will jump 18% to $200.7 million in fiscal 2008 vs $170 million in fiscal 2007, while earnings will surge 111% to 40¢ a share in 2008 from 19¢ a share in 2007. Jekic bases his share-price target of $7.50 on a price/earnings multiple of 15 applied to his estimate of 50¢ a share net income in fiscal 2009. These numbers are roughly in line with Reuters Ltd.’s consensus estimates.

@page_break@Ten of 11 analysts who cover Com Dev rate it as a “buy,” with an average price target of $7.12 a share, according to Bloomberg LP.

> Wi-Lan Inc. All five analysts who cover this patent-licensing firm recommend it. Indeed, they view it as a tremendous bargain — Wi-Lan’s share value dropped almost 30% to $3.28 on Oct. 5 from $4.65 at yearend 2006. And it’s off a breathtaking 59% from its February peak of $7.97.

There are two main factors behind the drop. First is a Supreme Court ruling in the U.S. that may make it more difficult for Wi-Lan and other patentholders to sue companies successfully for royalties. The second reason has to do with inves-tors’ expectations. Since securing a landmark licensing deal late last year with Finland-based wireless-technology giant Nokia Corp., Wi-Lan has unveiled less than a handful of much smaller deals.

However, analysts believe that Wi-Lan CEO James Skippen is making significant headway in negotiating new licensing arrangements. That, plus a relatively low share price, makes Wi-Lan a strong “buy,” according to Greg Reid, an analyst with Wellington West.

In a Sept. 14 report, Reid projects Wi-Lan’s revenue will jump 104% to $38 million in the fiscal year ending Oct. 31, 2008, vs $18.6 million in fiscal 2007 — and more than double again to $80 million in fiscal 2009. He also predicts earnings will rise to 27¢ a share in 2008 vs 22¢ a share in 2007, before rising to 58¢ a share in 2009.

Barry Richards, an analyst with Toronto-based Paradigm Capital Inc. , is more optimistic. His Sept. 6 research report carries a 12-month share price target of $8.50 vs Reid’s $7. This is based on Richards’ prediction that revenue will surge to $110 million in fiscal 2008. He notes that Wi-Lan has identified 250 companies that may be infringing on its technology patents. About 150 have offered responses.

The risk of investing in Wi-Lan is that it’s impossible to know when or if the firm will be able to sign these licensing arrangements, thereby generating revenue streams. Skippen, formerly the legal counsel for Kanata, Ont.-based Mosaid Technologies Ltd., does have plenty of experience in this field.

> Absolute Software Corp. This third mid-cap tech company favoured by analysts may be the riskiest, largely because its stock has appreciated so much already. Absolute Software, which makes a product that locates and recovers stolen personal computers, saw its share price soar 269.7% to $32.35 on Oct. 5 from $8.75 at yearend 2006. This gives the firm a market cap of $758 million.

However, this seems rich, given that the Reuters consensus forecast doesn’t see Absolute Software generating a profit until the fiscal year ending June 30, 2009. Nevertheless, the company does have two very attractive qualities. First, its sales are growing rapidly: the consensus Reuters forecast calls for a 91% jump in revenue in fiscal 2008 to $38.4 million vs $20.1 million in fiscal 2007, with a further 52% rise to $58.3 million in fiscal 2009. And, second, it’s considered a very attractive takeover candidate for a larger company operating in the field of antivirus or firewall software.

Seven of eight analysts tracked by Bloomberg rate Absolute Software a “buy,” with share price targets ranging from $31.50 to $40. IE