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Coronavirus-Induced Lockdown Triggers Software Demand: 7 Best Bets

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The coronavirus crisis has compelled governments globally to impose lockdown to contain the spread.

The lockdowns have been weighing on corporate earnings and disrupting supply chains, with no immediate respite in sight. Notably, per data from the University of Michigan, consumer sentiment index dropped to 89.1 in March from 101 in February.

Nevertheless, courtesy of the ongoing adoption of digital transformation, and evolving IT and networking infrastructure, majority of the companies are asking employees to work from home.

Work-from-home has been providing economic relief amid the crisis as it ensures job safety for employees while maintaining business productivity for employers. It is to be noted that, a record 3.28 million Americans have filed for unemployment benefits in the week ending Mar 21, signaling at a sharp spike in unemployment levels.

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.

Software Stocks to Benefit

The 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.

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 declined 8.5% year to date. Meanwhile, Technology Select Sector SPDR ETF (XLK) has declined 10.7% over the same timeframe. This highlights the resilience of the broader software technology industry.

Software Bets Poised to Weather the Crisis

In wake of the present scenario, it’s advisable to keep a tab on computer software stocks that are well poised to gain and are immune to the virus’ impact. We are presenting seven stocks with promising fundamentals that are well positioned to grow in the days ahead.

Year-to-Date Price Performance

Avid Technology AVID is expected to benefit from increasing recurring revenues, driven by growth in subscriptions and long-term agreements already signed.

Expanding paid subscriber base and growing adoption of creative tools, courtesy of strong demand for the media, graphics and cloud solutions, are tailwinds. The company currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Smith Micro Software SMSI is expected to gain from ongoing momentum in its SafePath Family of mobile software solutions.

Strength in retail platform solution, ViewSpot, and analytics solution, NetWise Optics, and other offerings to automate various digital processes are expected to gain steam on the back of coronavirus-induced Internet demand.

The company currently flaunts a Zacks Rank #1.

Nuance Communications NUAN provides innovative conversational AItools to enhance business productivity. The company’s healthcare delivery offerings, including clinical language understanding solutions are expected to gain adoption in the wake of coronavirus crisis.

Particularly, growing clout of Dragon Medical One speech recognition engine among clinicians is expected to aid this Zacks Rank #2 (Buy) stock.

Cornerstone OnDemand (CSOD) is set to gain from robust adoption of inclusive learning talent management and learning SaaS-based platforms. The company is expanding its online learning content portfolio across LinkedIn (Lynda), PluralSight, and SkillSoft, which favors business prospects in this crisis.

The company currently has a Zacks Rank of 2.

Synopsys SNPS is expected to benefit from robust adoption of its advanced solutions, including Fusion Design Platform, and Verification Continuum platform from semiconductor companies and large cloud hyperscalers.

Increasing global design activity and customer engagements, remain noteworthy, and are expected to provide this Zacks Rank #2 company an edge in simulation software market against Cadence Systems.

Investors can also keep a watch on SAP and Microsoft, both currently carrying a Zacks Rank #3 (Hold).

Microsoft MSFT is well-poised to benefit from the robust adoption of Azure cloud platform and Office 365 applications, which it recently rebranded as Microsoft 365 with added capabilities.

Moreover, coronavirus-led work from home surge drove the uptake of Teams, which now has more than 44 million daily active users (DAUs), thereby lending the leading software provider, a competitive edge against Slack and Zoom. In Italy, the company witnessed 775% hike in Teams user base.

More so, the company is also witnessing spike in Skype users owing to coronavirus-induced work-from-home wave, with 40 million daily users, up 70% in the past one month.

SAP SE SAP is benefiting from robust adoption of S/4HANA, C/4HANA, Fieldglass, Concur and SuccessFactors Employee Central solutions.

The company's alliances with Microsoft, Accenture and Verizon favor business prospects. It is harnessing the power of ML to enhance enterprise applications. This, in turn, is enabling the company to bolster adoption of its solutions and provide clientele with data-driven business insights.

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