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4 Software Stocks that Deserve a Place in Your Portfolio

Zacks Equity Research

Over the years, 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 (A.I.) technology, chip shrinking technology, self-driving cars, personal assistants, high-speed Internet and home automation, thus setting the stage for robust 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 the year ahead.

Notably, as per Gartner Inc. IT, worldwide spending on software reached $333 billion in 2016, registering year-over-year increase of 5.9%. The independent research firm predicts that spending will rise 6.8% in 2017 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 solid earnings continue to do well in comparison with other sectors. During the last earnings season, most of the software stocks reported positive earnings surprises.

So far this year, the software industry has had a remarkable run in the stock market, with iShares North American Tech-Software (IGV) registering a return of 16.3%. This 58-stock ETF provides exposure to the software segment of the broader U.S. technology space.

The ETF surpassed Technology Select Sector SPDR ETF’s XLK, which comprises U.S. technology stocks, return of 10.5% as well as Dow Jones Industrial Average DJI, NASDAQ Composite IXIC and S&P 500’s GSPC gain of 5.9%, 9.6% and 6.4%, respectively.

As software promises a bright future in the year ahead, we believe adding some of these stocks to your portfolio will help boost returns.

4 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) and a VGM Style Score of “A” or “B.”. You can see the complete list of today’s Zacks #1 Rank stocks here.

j2 Global, Inc. JCOM provides cloud-based communications and storage messaging services. The stock sports a Zacks Rank #1 and has a VGM Style Score of “B”. 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. Also, J2 Global currently trades at a forward P/E multiple of 15.4x, which is way lower than the Zacks categorized Internet Software industry average of 183.8x.

j2 Global, Inc. Price, Consensus and EPS Surprise

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

Synchronoss Technologies Inc. SNCR is the premier provider of on-demand transaction management software to Tier One communications service providers. The stock carries a Zacks Rank #2 and has a VGM Style Score of “A”. Moreover, Synchronoss has an expected EPS growth rate of 36.9% and 33.2% for 2017 and 2018, respectively. Also, the stock currently trades at a forward P/E multiple of 13.2x, which is way lower than the Zacks categorized Internet Software industry average of 183.8x.

Synchronoss Technologies, Inc. Price, Consensus and EPS Surprise

Synchronoss Technologies, Inc. Price, Consensus and EPS Surprise | Synchronoss Technologies, Inc. Quote

Progress Software Corporation PRGS 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 24.1x.

Progress Software Corporation Price, Consensus and EPS Surprise

Progress Software Corporation Price, Consensus and EPS Surprise | Progress Software Corporation Quote

Planet Payment Inc. PLPM is a provider of international payment processing and multi-currency processing services. The stock carries a Zacks Rank #2 and has a VGM Style Score of “A.” Moreover, Planet Payment has an expected EPS growth rate of 40% and 23.8% for 2017 and 2018, respectively. Also, the stock currently trades at a forward P/E multiple of 17.5x, which is lower than the Zacks categorized Computer-Software industry average of 24.1x.

Planet Payment, Inc. Price, Consensus and EPS Surprise

Planet Payment, Inc. Price, Consensus and EPS Surprise | Planet Payment, 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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Gartner, Inc. (IT): Free Stock Analysis Report
 
j2 Global, Inc. (JCOM): Free Stock Analysis Report
 
Synchronoss Technologies, Inc. (SNCR): Free Stock Analysis Report
 
Progress Software Corporation (PRGS): Free Stock Analysis Report
 
Planet Payment, Inc. (PLPM): Free Stock Analysis Report
 
SPDR-TECH SELS (XLK): ETF Research Reports
 
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