Technology has done very well during the Trump rally, which appears to be losing a little of its post-election steam, and one subsector that has been very strong is software. In fact, according to Merrill Lynch, software has outperformed the Nasdaq substantially so far in 2017, with the Merrill Lynch software coverage group up 14.6% versus the Nasdaq’s 8.1% year-to-date gain.
In a new research report, the very solid servers and enterprise software analysts at Merrill Lynch make the case that investors’ attention has returned to growth, and so the team has revised its top software picks. They include both large cap and small cap names, and all the stocks make good sense for investors looking to add positions now. All are rated Buy at Merrill Lynch.
This high-profile old-school software company has posted outstanding earnings. Adobe Systems Incorporated, Inc. (NASDAQ: ADBE) operates in three segments. The Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote and monetize their digital content. The other segments are Digital Marketing and Print and Publishing.
Top analysts feel there are an additional 11.7 million potential users, driven by growth in the creative community, student and teacher penetration and conversions from the piracy. Market and value expansion provide additional upside.
Adobe is also reasonably safe route for investors looking to own a company with a marketing automation product, which has become huge. Adobe also has a partnership with Microsoft.
The Merrill Lynch price target for the stock is $160. The Wall Street consensus price target is $141.09. Shares traded on Monday at $127.20.
This stock has had a solid run since selling off late last year. HubSpot Inc. (NYSE: HUBS) provides a cloud-based marketing and sales software platform for businesses in the Americas, Europe and the Asia-Pacific. Its software platform includes integrated applications, such as social media, search engine optimization, blogging, website content management, marketing automation, email, customer relationship management, analytics and reporting that enables businesses to attract visitors to their websites, convert visitors into leads and close leads into customers. The company also offers professional and phone and email-based support services.
The company reported very solid fourth-quarter and full-year 2016 numbers back in February. The strong fourth-quarter customer adds were helped by a strong December following Inbound, plus the company also showed success with new freemium channel.
Merrill Lynch has a $70 price target, and the consensus target is $66.82. The shares traded Monday at $58.05.
This is another top old-school technology stock that remains a top pick at Merrill Lynch, and it has a massive $121.2 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.
Numerous Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is the company’s cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service. Analysts also maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users.
Microsoft has reported quarterly earnings and revenue that easily topped analysts’ expectations, as its key cloud product, Azure, saw revenue grow 102%. Fiscal fourth-quarter results exceeded the Thomson Reuters consensus estimates.
Shareholders receive a 2.4% dividend. The $75 Merrill Lynch price target compares with the consensus price objective of $69.42. Shares traded Monday at $64.50.
This top software stock has finally given shareholders something to smile about. Oracle Corp. (NYSE: ORCL) develops, manufactures, markets, sells, hosts and supports database and middleware software, application software, cloud infrastructure, hardware systems and related services worldwide.
The company licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval and manipulation of various forms of data. Its Oracle Fusion Middleware software aims to build, deploy, secure, access and integrate business applications, as well as automate their business processes.
The company finally rewarded investors with a breakout quarter when it recently reported earnings. Numbers and metrics higher than expected on almost all fronts, and the Merrill Lynch analysts noted that the results validated their thesis of an inflection point on software revenue growth and operating income going forward.
Shareholders receive a 1.7% dividend. The Merrill Lynch price target is $54. The consensus target is $48.21, and the stock traded on Monday at $44.60.
This top company reported solid fourth-quarter results as billings drastically improved. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. It offers enterprise cloud computing applications and platform services, including Sales Cloud that enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.
The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.
The analysts noted in a recent report:
Coming out of Salesforce.com’s event, we believe the target to potentially 2 times revenues over 3-4 years is credible. As the depth of Einstein capabilities gets assimilated in core products, customers are headed for a new wave of productivity.
Merrill Lynch has set its price target at $100, while the consensus target is $96. Shares traded Monday at $81.00.
This stock also remains one of the top Buys on Wall Street. Splunk Inc. (NASDAQ: SPLK) provides a software platform for collecting, storing, indexing, searching and analyzing machine generated data, such as log files and configuration files, which are prevalent in every type of IT system, device and application.
Splunk technology is potentially applicable and disruptive in several market segments, including IT operations, security and compliance, and business intelligence. These market segments are collectively worth $28 billion today.
The company reported outstanding fourth-quarter results, beating expectations for all metrics including sales, margins, free cash flow and billings. While the guidance was below expectations, many think the first quarter will be the bottom, and shares are an outstanding buy at current levels.
The massive $90 Merrill Lynch price target compares with a consensus price objective of $72.03. Shares traded Monday at $60.15.
Merrill Lynch is not alone in its admiration for these top companies. Most on Wall Street are in agreement. Big data, analytics, cloud computing and much more are the big stories going forward, and these are great ways to play them.