The coronavirus crisis triggered stay-at-home and work-from-home wave has led to a spike in relevant software demand, primarily enterprise communication, workspace management, human capital management (HCM), among others.
Further, software companies involved in development and maintenance of digital learning and healthcare platforms, payment systems, cybersecurity, Internet delivery portals, online fitness, gaming and leisure are also gaining steam. Major breakthroughs in cloud computing, predictive analysis, artificial intelligence (AI), virtual assistants, robotics and IoT have set the stage for solid growth in the enterprise software stocks. Notably, iShares North American Tech-Software ETF (IGV) has gained 68.4% in the past year. Meanwhile, SPDR S&P 500 ETF’s (SPY) is up 53.3%, over the same time frame. This highlights the resilience of the broader software technology industry. What’s Working in Favor for Enterprise Software Players?
Software players are leaving no stone unturned to enhance their applications portfolio. The initiatives include extending capabilities of smart assistants by leveraging natural language processing (NLP) technology that is helping to expand market reach.
Moreover, software companies are providing customized solutions to maximize engagement with clientele. Notably, an increasing focus on providing a better customer experience is bolstering growth of customer relationship management (CRM) software. Further, the growing need to secure cloud platforms amid rampant incidents of cyber-attacks and hacking is driving demand for cyber security software. Additionally, increasing enterprise investment in Big Data and analytics, and ongoing adoption of Software-as-a-Service (SaaS) favor the growth prospects of the software industry. Notably, Gartner estimates global IT expenditure to grow 6.2% in 2021 to $3.9 trillion, courtesy of pandemic induced surge in digital transformation efforts. Enterprise software spending, which is likely to record highest growth of 8.8% in 2021, is being driven by thriving remote work environments, adds Gartner. Furthermore, enterprises are aiming at rapid migration to cloud and DevOps technologies for achieving scalability and agility in favor of software development and IT operations, which in turn will help in delivering a enhanced digital experience to clients in this hyperautomation era. Our Top 5 Picks
We have zeroed in on five stocks poised to make the most of growing market interest in enterprise software domain.
One Year Price Performance Cadence Design Systems, Inc. ( CDNS Quick Quote CDNS - Free Report) is experiencing strong demand for its software — particularly verification and digital design products — from customers providing datacenter servers and networking products. The company is well-poised to gain from higher investments on emerging trends like Internet of Things (IoT), and autonomous vehicle sub-systems along with strength in semiconductor end-market. Frequent product launches are expected to help the company sustain top-line growth. The company, presently sporting a Zacks Rank #1 (Strong Buy) is expected to capitalize on strong pipeline and improving backlog despite COVID-19 related headwinds. You can see . the complete list of today’s Zacks #1 Rank stocks here Notably, the Zacks Consensus Estimate for the company’s 2021 earnings has moved north by 4.9% to $3.02 over the past 60 days. Microsoft Corporation ( MSFT Quick Quote MSFT - Free Report) is well-poised to benefit from robust adoption of Azure cloud platform and Office 365 applications, which it has rebranded as Microsoft 365 with added capabilities. Moreover, coronavirus-led digital transformation, work-from-home, online learning wave and tele healthcare trends drove the uptake of Teams, which has daily active user base of 60 million on mobile alone, as noted by management in second-quarter fiscal 2021 earnings call. Moreover, it is worth mentioning that out of Fortune 100 companies, 93 have implemented Microsoft Teams. This provides the leading software provider with a competitive edge against Slack and Zoom Video ( ZM Quick Quote ZM - Free Report) . Further, the company is gaining from growing user base of its different offerings including Dynamics, Skype and LinkedIn. Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 0.4% to $7.37 over the past 30 days. Microsoft currently carries a Zacks Rank #2 (Buy). Adobe Inc. ( ADBE Quick Quote ADBE - Free Report) is benefiting from strong demand for its creative products. The company’s Creative Cloud, Document Cloud and Adobe Experience Cloud products are key top-line growth drivers. Rising subscription revenues and solid momentum across the mobile apps remain major catalysts. Growth in emerging markets, robust online video creation demand and improving average revenue per user are tailwinds for this Zacks Rank #2 company. We remain optimistic about Adobe’s market position, compelling product lines, continued innovation, solid adoption of Creative Cloud and Adobe marketing cloud. Notably, the Zacks Consensus Estimate for earnings for fiscal 2021 has improved 4.6% to $11.78 over the past 30 days. Upland Software, Inc. ( UPLD Quick Quote UPLD - Free Report) offers cloud-based enterprise work management software. An expanding customer base, driven by organic growth in Customer Experience Management solution and addition of robust products through acquisitions, remains a key tailwind for this Zacks Rank #2 company. Notably, in fourth-quarter 2020, Upland signed 111 new customers and expanded relationships with 242 existing customers. In a bid to boost cross team collaboration and communication for Project and IT Management product suite users, the company expanded its Microsoft Teams integration. The momentum in customer addition is likely to continue through 2021 on account of strong demand for cloud-based enterprise work management software solutions across various industries. Moreover, acquisitions are expected to help the company rapidly penetrate different markets, including Professional Services Automation, Document Automation, Project & Financial Management and Knowledge Management. Further, the top line is expected to gain from improving cross-selling opportunity. Notably, the Zacks Consensus Estimate for the company’s 2021 earnings has moved north by 2 cents to $1.82 over the past 60 days. Veeva Systems Inc. ( VEEV Quick Quote VEEV - Free Report) continues to benefit from its flagship Vault platform. Markedly, the company’s unique solutions include Veeva Vault, Veeva CRM, Veeva Network and Veeva OpenData. Its new CRM Sunrise UI and Nitro bodes well for this Zacks Rank #2 company. In fact, the impressive performance of the company’s core Subscription business and Professional Service segments, driven by robust adoption of its cloud-based offerings, compelled management to raise guidance for fiscal 2022. The company’s knowledge base regarding different components of the life sciences industry is helping it to build targeted products. Moreover, in Commercial Cloud, Veeva Systems is securing a good number of deals. Notably, the Zacks Consensus Estimate for the company’s fiscal 2022 earnings has moved north by 3.5% to $3.22 over the past 60 days. Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys. Access Zacks Top 10 Stocks for 2021 today >>