Want to invest or trade a growth industry? Perhaps in the HOT Tech space?
Take a look at the Business Software Services industry. This is a Zacks industry with a sizeable 12 publicly-covered companies. This active Info Tech niche is currently ranked #21 out of 265 industries we rank. That is in the top 8%.
The YTD 2017 return is a superb +28%. It’s tough to beat share performance like that.
Further, it doesn’t look like covering analyst earnings upgrades will stop arriving anytime soon. As evidence for that, I see 8 upgrades and just 1 downgrade in our system. The proprietary Zacks Heat Map shows this group has stayed hot, going back 8 weeks in a row, and it is getting hotter over time.
A recent industry report (put out by Grand View Research) stated the obvious. Expect the global business software and services end markets to grow smartly – they say primarily due to a relentless need for transparency and efficiency -- in ever more complex, Info Tech-oriented internal business functions.
Furthermore, compliance with stringent government regulations assist the broad implementation of such software.
Business software can improve productivity and minimize complexity. Often known as enterprise software and services by this ‘wonkie’ crowd, their programming efforts facilitate the integration of numerous business processes.
Their latest software upgrades assist a smoother flow of information across functions. That makes for quicker decision-making and speeds up both worker and machine-based productivity.
The business software industry segments it’s programming effort based on functions: usually into finance, human resource and supply chain.
The finance function accounts for a maximum share of activity. Software makes it easy to manage different financial activities including investment, accounting, asset management and cash flow management.
Yet, the human resource function should show the maximum growth. This is due to ballooning organizations in rapidly expanding companies.
A high cost of implementation -- and a high level of competition within this very established market -- acts as the major restraint for those in the business.
Now, here are three top Zacks Ranked picks to look into:
Synnex Corp. (SNX - Free Report) : A Zacks Rank #1 (STRONG BUY). This is a $5.1 billion market cap stock. Though it is priced at $131 a share, the stock garners a B in Value (with a 14.9 Forward P/E), but an F in Growth (where 2017 earnings are at $8.79 and 2018 is at $9.56). That $0.77 in future earnings growth doesn’t add up to enough, in a fast-growing space like this.
Yet, my colleague Tracey Ryniec wrote up this stock on Oct. 10th for Zacks Bull of the Day: “Beating the estimate has become commonplace with SYNNEX. It has only missed once in the last five years.”
Synnex Corporation is a business process services company. The company provides a range of distribution, logistics and integration services for the tech industry and provides outsourced services focused on a unique customer engagement strategy. It operates in two segments: Technology Solutions and Concentrix.
Cognizant (CTSH - Free Report) : A Zacks #2 Rank (BUY). This is a $44 billion market cap stock. It is priced at $75 a share. Momentum is on. This stock started 2017 as a $55 a share stock. After that nice run up, the stock garners a C in Value (with a Forward P/E at 23) and a C in Growth.
Cognizant's strong growth can be attributed to its significant exposure to the fast-growing industry verticals like Financial Services and Health Care.
The firm operates in four segments: Financial Services, Health Care, Manufacturing/Retail/Logistics and Other. Headquarters is in Teaneck, NJ.
For Finance and Manufacturing/Retail/Logistics, its consulting and technology services include strategy consulting, business and operations consulting, technology strategy and change management, and program management consulting services.
Also, they offer application design and development; systems integration; and application testing, consulting and engineering services, as well as enterprise information management services.
The company also develops, licenses, implements, and supports proprietary and third-party software products for the Health Care industry.
Finally, it provides more generic outsourcing services.
The big risk is the stiff competition: Cognizant faces significant competition from the likes of Accenture, Capgemini, Computer Sciences Corp, Genpact, HCL Technologies, HP Enterprise, IBM Global Services, Infosys Technologies, Tata Consultancy Services, Wipro and numerous local providers.
That gets me to my last pick…
Wipro (WIT - Free Report) : A Zacks Rank #2 (BUY) stock. This a cheap value stock in the space, currently trading at a technical low near $5 a share. The stock had gotten to $7 a share in recent years. The Forward P/E is 20, which amounts to a Zacks Value rank of B.
This is a classic Info Tech outsourcing company, based out of India. 2017 annual earnings look to be $0.27 a share, while $0.29 a share is the 2018 consensus. In its recent Oct. 7th earnings report, Wipro offered its shareholders just 7 cents a share in quarterly earnings. The company also missed on revenue growth and showed some market stress, with a -0.5% annual revenue growth rate.
WIPRO provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services -- to corporations globally.
Happy Trading to All!