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6 Software Stocks that Deserve a Place in Your Portfolio

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Over the years, the dynamics of the software industry, the ways in which organizations conduct their businesses and people connect with each other have changed, thanks to technological progress and innovation.

As technology continues its rapid invasion into every corner of human existence, the need for improved software has increased manifold. The last few years witnessed breakthroughs in cloud computing and artificial intelligence (AI) technology, chip shrinking technology, self-driving cars, personal assistants, high-speed Internet and home automation, thus setting the stage for strong growth in the software industry.

With the U.S. economy rebounding, as evident from the improving economic data for GDP, the Consumer Confidence Index, unemployment rate and factory activity data, we believe that there are tremendous growth opportunities for software stocks in 2017.

Notably, as per Gartner Inc. (IT - Free Report) , worldwide spending on software reached $333 billion in 2016, registering year-over-year increase of 5.9%. The independent research firm predicts that in 2017 the spending will rise 6.8% to reach $355 billion. This is much higher than the projected rate of 2.7% increase in spending for the entire tech industry.

Furthermore, software stocks with strong earnings continue to do well in comparison with other sectors. During the recently concluded earnings season, most of the software stocks reported positive earnings surprises.

So far this year, the software industry has had remarkable run in the stock market with iShares North American Tech-Software (IGV - Free Report) registering a return of 13.9%. This 58-stock ETF provides exposure to the software segment of the broader U.S. technology space.

The ETF has surpassed Technology Select Sector SPDR ETF’s (XLK - Free Report) , which represents the returns of U.S. technology stocks, return of 8.8% as well as Dow Jones Industrial Average (DJI), NASDAQ Composite (IXIC) and S&P 500’s (GSPC) gain of 5.4%, 8.9% and 5.8%, respectively.

As software promises a bright future for 2017, we believe adding some of these stocks to your portfolio will help boost returns.

6 Software Stocks with Solid Potential

With the help of our style score system, we have picked four software stocks that have performed well so far this year and have the potential to keep the momentum going in the next year. They also have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), a VGM Style Score of “A” or “B” and low P/E multiple than the industry average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Imperva Inc. is engaged in the development of protection software and services for business applications and databases. The stock carries a Zacks Rank #2 and has a VGM Style Score of “B.” Moreover, Imperva posted a positive earnings surprise of 16.67% in its last reported quarter and has an expected long-term EPS growth rate of 21.7%, which is significantly higher than the Zacks categorized Computer-Software industry average of 10.8%.

Imperva, Inc. Price and EPS Surprise

Imperva, Inc. Price and EPS Surprise | Imperva, Inc. Quote

Progress Software Corporation (PRGS - Free Report) is a global supplier of application development, deployment and management technology, Internet and intranet enabling technologies and support services to business, industry and government. The stock carries a Zacks Rank #2 and has a VGM Style Score of “B.”

Moreover, Progress Software posted a positive earnings surprise of 14.58% in its last reported quarter and has an expected EPS growth rate of 6.9% and 5.8% for fiscal 2017 and fiscal 2018, respectively. Also, Progress Software currently trades at a forward P/E multiple of 20.9x, which is lower than the Zacks categorized Computer-Software industry average of 23.9x.

Rocket Fuel Inc. is a leading provider of artificial intelligence advertising solutions for digital marketers. The stock carries a Zacks Rank #2 and has a VGM Style Score of “B.” Moreover, Rocket Fuel posted a positive earnings surprise of 11.11% in its last reported quarter and has an expected EPS growth rate of 14.7% and 27.2% for 2017 and 2018, respectively.

Rocket Fuel Inc. Price and EPS Surprise

Rocket Fuel Inc. Price and EPS Surprise | Rocket Fuel Inc. Quote

j2 Global, Inc. provides cloud-based communications and storage messaging services. The stock carries a Zacks Rank #1 and has a VGM Style Score of “A.” Moreover, j2 Global posted a positive earnings surprise of 9.70% in its last reported quarter and has an expected EPS growth rate of 15.4% and 7.3% for 2017 and 2018, respectively.

j2 Global, Inc. Price and EPS Surprise

j2 Global, Inc. Price and EPS Surprise | j2 Global, Inc. Quote

MobileIron, Inc. is engaged in providing security and management solutions for mobile applications, content, and devices. The stock carries a Zacks Rank #2 and has a VGM Style Score of “B.” Moreover, MobileIron posted a positive earnings surprise of 14.29% in its last reported quarter and has an expected EPS growth rate of 30.3% and 26.4% for 2017 and 2018, respectively.

MobileIron, Inc. Price and EPS Surprise

MobileIron, Inc. Price and EPS Surprise | MobileIron, Inc. Quote

Amaya, Inc. offers technology-based products and services in the gaming industry. The stock carries a Zacks Rank #2 and has a VGM Style Score of “B.” Moreover, Amaya posted a positive earnings surprise of 10.53% in its last reported quarter. Also, Amaya currently trades at a forward P/E multiple of 7.6x, which is significantly lower than the Zacks categorized Internet Software industry average of 192.4x.

Amaya Inc. Price and EPS Surprise

Amaya Inc. Price and EPS Surprise | Amaya Inc. Quote

Conclusion

Software companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality software stocks.

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