For Immediate Release
Chicago, IL – January 18, 2023 – Today, Zacks Investment Ideas feature highlights Ishares Expanded Tech-Software ETF IGV, Salesforce CRM, Okta Inc. OKTA, Palo Alto Networks PANW and Hello Group Inc. MOMO.
Software Is Still “Eating the World”: 3 Top-Ranked Stocks
Over ten years ago, Silicon Valley legend Marc Andreessen correctly proclaimed that “software is eating the world.” Today, every Fortune 500 Company uses software in one way or another. Advancements in computer hardware have led to more powerful and efficient software. Industries such as healthcare, education, and finance have adopted software to collect and maintain data, fight cyber security threats, make business more efficient, and much more.
As more companies of all sizes have adopted software, software stocks have been significant beneficiaries over the past decade. For example, before the 2022 market correction, the Ishares Expanded Tech-Software ETF was at one point up 600% over a ten-year period.
Since topping in the fourth quarter of 2021, the picture has changed completely. Software-related stocks took the brunt of the sell off as investors exited high-valuation growth stocks and transitioned into steady value stocks.
The latest correction is on pace to be one of the longest and nastiest in the history of the IGV ETF outside of the 2008 Global Financial Crisis and aftermath of the tech bubble in the early 2000s. In fact, the current correction is even worse than that of the Covid correction it suffered in 2020.
Despite the recent bearishness in the industry, investors should be sure to keep their perspective. Software valuations are the lowest they have been in years. For example, software giant Salesforce has seen its P/E ratio drop from over 90 in 2018 to 33.90 today.
Below, we will cover three #1 Ranked Zacks stocks that are worth watching:
Okta Inc. is a cyber-security-focused software company that provides clients with multi-factor Authentication, mobility management, and enterprise solutions. Though Okta’s stock has fallen hard (along with the industry), it has surprised to the upside on earnings in every quarter dating back to 2019.
Fortunately for Okta, companies can only hold off on cyber security expenses for so long. Over the past 60 days, Zack’s Consensus estimate data for the coming quarters have seen a very powerful positive trend. For example, 60 days ago, consensus analyst estimates suggested that the company would lose 0.12 a share for the first quarter.
Currently, analysts’ expectations have become rosier, and consensus analyst estimates suggest that the company may deliver a profit of 0.09 cents per share in Q1. A profitable quarter would be significant. Though Okta has had years of impressive revenue growth since coming public, the company has only had one year of profitability as a public company.
As software valuations get more attractive, Okta and other cybersecurity stocks such as Palo Alto Networks, become potential acquisition targets in 2023. Private equity firm Thoma Bravo has purchased six cybersecurity firms in just the past few years alone. The stock is currently consolidating near $74. If shares can clear the $74 level, it may act as an interesting “dumpster dive” play for investors looking for a turnaround play.
Hello Group Inc. provides a mobile social and entertainment platform in China. Over the past three months, the stock symbol “MOMO” has been appropriate. Shares have launched higher by 118.2% since late October.
Though the software space has had a tough couple of years, the industry is worth keeping on the radar. Valuations are becoming more reasonable, and consensus analyst estimates suggest that many top software companies are turning the corner from an earnings perspective. Investors should focus their energy on top-ranked software stocks with stellar earnings growth at reasonable valuations.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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