Last year was challenging for the software industry due to various macroeconomic headwinds, including aggressive Fed rate hikes, multi-decade high inflation, and geopolitical unrest resulting from the Russia-Ukraine war. The tech-heavy Nasdaq Composite lost more than 15.4% over the past year.
However, the overall enterprise IT spending is anticipated to remain stable this year. According to Gartner, Inc. (IT), global IT spending is expected to reach $4.50 trillion in 2023, a rise of 2.4% from 2022. Among this, software spending is expected to increase 9.3% in 2023 to about $856 billion.
Moreover, the software industry stands to benefit from the growing adoption of cloud computing as businesses shift more of their workloads from traditional to digital formats. The public-cloud ERP market is expected to reach $73 billion by 2026, representing a 15% annual growth rate.
Investor’s interest in software stocks is evident from the iShares Expanded Tech-Software Sector ETF’s (IGV) 18% returns over the past three months. Furthermore, by 2027, the global software market is projected to generate $812.90 billion in revenue at a 5.7% CAGR.
Against this backdrop, it could be wise to invest in fundamentally sound software stocks Oracle Corporation (ORCL), Salesforce, Inc. (CRM), and Progress Software Corporation (PRGS) this year.
Oracle Corporation (ORCL)
ORCL offers products and services that address enterprise information technology environments. The business provides Oracle application licenses along with its support services and cloud-based industry solutions for a diverse range of industries. It also offers hardware products and other software choices relating to hardware.
Recently, ORCL announced that Mizuho Bank, Ltd., one of Japan's largest financial services organizations and the integrated retail and corporate banking unit of Mizuho Financial Group, Inc. (MFG), is modernizing its legacy banking system for international operations by integrating ORCL's banking solutions to support critical functions.
With the ORCL foundation, the bank should be able to continue to improve its services and products to best meet the needs of its clients and stakeholders worldwide, which should boost ORCL's growth.
Moreover, on January 31, ORCL and Red Hat, Inc., an open-source solutions provider, announced a multi-stage agreement to provide clients with a broader range of operating systems to run on Oracle Cloud Infrastructure (OCI).
The collaboration is expected to enhance the user experience for enterprises that depend on OCI and Red Hat Enterprise Linux to support digital transformation and the migration of mission-critical applications to the cloud. This could strategically benefit ORCL.
For the quarter that ended November 30, 2022, ORCL’s total revenues grew 18.5% year-over-year to $12.28 billion. Its operating income came in at $3.07 billion as compared to a loss of $824 million in the previous year’s quarter.
Also, the company’s net income and EPS stood at $1.74 billion and $0.63, as compared to a loss and loss per share of $1.25 billion and $0.46 in the prior year’s period, respectively.
ORCL pays a $1.28 per share dividend annually, which translates to a 1.42% yield on the current price level. The company’s dividend payments have grown at an 11% CAGR over the past five years, and its four-year average dividend yield is 1.59%. Moreover, the company has raised its dividends for eight consecutive years.
The consensus revenue estimate of $49.87 billion for the fiscal year ending May 2023 indicates a 17.5% year-over-year improvement. The consensus EPS estimate of $4.91 for the same year reflects a marginal rise from the prior year.
Shares of ORCL have gained 7.8% over the past month and 17.1% over the past six months to close the last trading session at $89.38.
ORCL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a Sentiment grade of A and a Stability grade of B. In the 137-stock Software - Application industry, it is ranked #27.
Beyond what we stated above, we also have ORCL’s ratings for Value, Quality, Growth, and Momentum. Get all ORCL ratings here.
Salesforce, Inc. (CRM)
CRM offers customer relationship management technology that connects businesses and clients globally. The company's service offerings include sales to store data, monitor leads and progress, forecast opportunities, acquire insights through analytics and relationship intelligence, and so on.
On January 12, 2023, CRM unveiled a range of new improvements to help retailers increase and optimize advertising sales, acquire a unified view of transactions across digital and physical stores, and unlock value from their customer data.
With recent CRM data indicating that disconnected experiences are the leading source of customer annoyance with retailers, the company's efforts to provide a more personalized experience might pay off.
Moreover, on January 9, CRM and Playvox, one of the leading providers of workforce engagement solutions, entered into a global partnership to enable CRM Service Cloud users to more quickly make changes in real-time based on Playvox's AI insights while also effectively managing forecasting, adherence, capacity planning, and long-term scheduling within CRM Contact Center.
The company’s total revenue grew 14.2% year-over-year to $7.84 billion in the fiscal third quarter that ended October 31, 2022. Its gross profit rose 14.5% from the year-ago value to $5.75 billion. Also, CRM’s non-GAAP income from operations came in at $1.78 billion, a 30.9% rise year-over-year.
Furthermore, the company’s non-GAAP net income and non-GAAP EPS increased 9.8% and 10.2% from the prior year’s period to $1.40 billion and $1.40, respectively.
Analysts expect CRM’s revenue to increase 17.2% year-over-year to $31.05 billion for the fiscal year that ended January 2023. The company’s EPS for the same year is expected to rise 3.1% from the previous year to $4.93. Also, CRM surpassed its consensus estimates in all four trailing quarters.
The stock has gained 29.9% over the past month to close the last trading session at $174.64.
CRM’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
CRM has a Growth grade of A and a Sentiment grade of B. Within the Software - Application industry, it is ranked #28 of 137 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see CRM ratings for Value, Stability, Quality, and Momentum here.
Progress Software Corporation (PRGS)
PRGS develops, deploys, and manages business applications. The company provides OpenEdge, an application development platform for operating business-critical applications. It also provides training services, web-enabled apps, custom development, project management, and other services.
On January 3, 2023, PRGS announced that it had entered into a definitive agreement to acquire MarkLogic, a leader in managing complex data and metadata, and a Vector Capital portfolio company.
By offering a unified enterprise-grade semantic data platform that enables users to extract value from complex data, MarkLogic is expected to drive significant growth for PRGS.
Moreover, on September 22, 2022, PRGS declared the expansion of its policy-based Chef® DevSecOps portfolio's coverage to India. Through this extension, Microsoft Corporation’s (MSFT) Azure clients and partners in the region would have greater access to all PRGS Chef products. This could be strategically beneficial for PRGS.
For the fiscal fourth quarter that ended November 30, PRGS’ non-GAAP revenue increased 10.7% year-over-year to $159.17 million, and its non-GAAP income from operations rose 20% year-over-year to $61.98 million. Moreover, the company’s non-GAAP net income and EPS came in at $49.24 million and $1.12, up 19.2% and 21.7% year-over-year, respectively.
The company pays a $0.70 per share dividend annually, translating to a 1.28% yield on the current price level. Its four-year average dividend yield is 1.54%, and its dividend payouts have increased at a 6.3% CAGR over the past five years.
The consensus revenue estimate of $663.46 million for the fiscal year ending November 2023 reflects an 8.7% year-over-year improvement. The consensus EPS estimate of $4.14 for the ongoing year indicates a marginal rise from the previous year. Moreover, PRGS surpassed its consensus estimates in all four trailing quarters.
Shares of PRGS have gained 11.7% over the past month and 21.5% over the past six months to close the last trading session at $56.92.
PRGS’ POWR Ratings reflect its strong prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
PRGS has an A grade for Quality and a B for Growth, Value, and Stability. Within the same industry, the stock has topped among 137 stocks.
To see additional POWR Ratings for Momentum and Sentiment for PRGS, click here.
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ORCL shares fell $1.08 (-1.21%) in premarket trading Friday. Year-to-date, ORCL has gained 9.11%, versus a 7.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Oracle, Salesforce and 1 Other Software Stock to Buy in 2023 StockNews.com
