Tech investors tend to extend current consumer trends into the future indefinitely. But no product dominates forever. Remember the Sony Walkman? Portable music technology has come a long way since then. Investors are better off identifying general traits of successful tech companies instead of specific products.

One of those traits is what we call “innogration.” It means one company acquiring another innovative one and then integrating the new technology into the acquiring company. Big companies with lots of cash can afford to do this, and sometimes they can innograte themselves to surprisingly fast growth, despite their size.

Investors often don’t notice until the stock is sky high.

You may be surprised to learn that, according to my IDEAL rating system, large-cap tech stocks are undervalued now even though the market’s approaching an all-time high. The average IDEAL score for the entire Standard & Poor’s 500-stock index is 5.1, compared to 6.6 for the 67 companies that constitute the information technology sector.

The main reason tech stocks score so high is their relatively low valuations compared to future earnings. Most large-cap tech stocks have become so big that investors don’t think the company’s earnings can continue growing at the same pace as smaller companies. That’s a problem for a stock like Apple. It has become so enormous, with a total stock market value of over $500 billion, that few analysts believe its current product lineup can generate enough revenue to support a higher valuation.

They may be right, but if Apple were to innograte itself into the fast-growing smart car market, for example, then it could again go on a growth tear. Until then, Apple will be seen as a boring value stock, unable to keep up with its more nimble rivals.

Hiding in Plain Sight

Of the tech companies with high total IDEAL scores (8 or more on a 10-point scale), I particularly like those that score highest for cash flow because that’s the fuel that drives near term growth. At the moment, three tech stocks score a total of 8 or higher while earning the maximum score of 3 for cash flow: Motorola Solutions (NYSE: MSI), Broadcom Ltd. (NSDQ: AVGO) and Lam Research (NSDQ: LRCX). Yes, that list reads like a Who’s Who of plain Jane tech companies, but sometimes plain hides great potential.

For example, earlier this month I booked a 52% gain in a LEAPS option on Western Digital in only seven weeks. (LEAPS are long-term equity securities anticipation options, better known as calls or puts.) Meanwhile, my colleague, Joe Duarte, closed out a LEAPS position in boring old McKesson for a 44% gain over the same period. These are the types of gains we love handing out to readers, so I’m going to give you a couple more LEAPS recommendations: Broadcom and Lam Research.

Sales for semiconductor manufacturer Broadcom more than doubled over the past three years, but the stock is still priced at only 12 times forward earnings. Its PEG ratio (price to earnings growth) of less than 1 suggests that the company can grow earnings at a faster rate than the market is valuing it for.

A Few PointersLam Research is also in the semiconductor business, and like Broadcom has doubled its sales over the past four years. The share price metrics are also similar to Broadcom’s and currently priced at 12 times forward earnings with a PEG ratio of just over 1. Analysts are projecting that Lam, a leader in the fast-growing 3D NAND memory chip market, will grow revenue at more than twice its historic pace over the next several years.

Because LEAPS are a bet on the next one to two years of a company’s financial performance, the safest bets are companies with rapidly rising revenue. Broadcom and Lam have enough cash flow to practice innogration, which should show up in their share prices well before these LEAPS expire.

A few quick points about buying LEAPS: Always use a limit order, especially if you intend to buy more than 10 at a time. The bid–ask market for LEAPS is relatively thin compared to monthly options, so prices can change quickly if a few buyers start bidding at the same time. For that reason you may also want to spread out your order over several days to avoid driving up the price of the option. Finally, the prices given here are as of July 20. For the most recent prices, check the Options Trades table under the Portfolio tab on our website.

IDEAL Explained

We look for stock market metrics that historically correlated with outperformance. For example, dividends account for roughly half of all stock market returns over the long run, but most tech investors ignore dividends when selecting stocks. So we assign a score of 0 to 3 for dividend yield based on each company’s annual dividend payment compared to the yield on U.S. Treasurys.

Using the same scale, we also score how fast a company’s net operating cash flow has grown over the past three years. That’s where the money comes from to pay dividends and to invest in innogration. Finally, on a scale of 0 to 4, we rank a stock’s relative valuation compared to its sector peer group based on its forward price-to-earnings multiple. Given how fast a tech company’s fortunes can change, trailing earnings are often meaningless.

Each rated stock ends up with a total IDEAL score somewhere from 0 to 10. Generally, I only recommend buying stocks with a total score of 8 or higher; for new short-sale candidates, the score is 2 or lower. Any stock scoring between 3 and 7 isn’t far enough away from the median to warrant immediate consideration, but those scores can change quickly as new data becomes available, which is why we update them daily in the Options Trades table under the Portfolio tab.

Taking a LEAP on Options

If you have never traded options before, then we strongly encourage you to read our Options Trading Guide on our website before attempting any of our options recommendations. If you have traded options before, you probably know that LEAPS are call options with an exercise date more than a year into the future. Because the demand for long-term options is limited, all LEAPS expire in January of each year. For example, you can buy (or sell) a LEAPS contract that expires only in January 2018 and for no other month that year. You’re not obliged to hold a LEAPS contract until the exercise date and can close it out at any time. That’s the beauty of LEAPS; if things go your way early, you can book that profit (as we did with McKesson and Western Digital) and move on to the next opportunity. If things don’t go your way, you have plenty of time to wait it out.