While the software industry had a decent year in 2016, the stocks as a whole underperformed the S&P 500. The software stocks rose 5.5%, compared with a 9.5% increase in the venerable index. While some value plays had strong years, growth stocks led the downtrend in the industry averaging 5% declines. The good news for investors is 2017 looks like a rebound year, and one firm sees larger government spending as a potential positive.

In a new research report, Jefferies feels comfortable that half of the global software demand that it can gauge will see modest growth in 2017, similar to last year. The firm noted in its report:

US government information technology spending and discretionary budgets of the biggest European government IT/Software spenders are expected to increase modestly. We believe the financial services vertical (23% of global IT spending) remains relatively healthy and largely unaffected by Brexit and the US election.

With the possibility of a lower U.S. corporate tax rate helping to increase earnings and cash flows, Jefferies is bullish on five stocks, all of which are rated Buy.

Oracle

This top software stock has traded sideways since last spring and looks to be putting in a nice cup and handle formation. 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.

Trading at 14.2 times estimated 2017 earnings, and sporting a solid free cash flow yield, many analysts also feel that as the company’s 12C database cycle starts to contribute during calendar 2016, the stock could very well be poised for what they term a breakout year. After recent investors meetings, some analysts raised fiscal year 2017 cloud margins to 66% from 63% and earnings per share to $2.80. Jefferies and others on Wall Street feel that the software giant may be on the verge of a multiyear database product cycle (12cR2).

The analysts also note that Oracle, through some missteps of its own, probably is not getting enough credit for its cloud business, which continues to grow.

Investors receive a 1.5% dividend. Jefferies has $51 price target on the stock, and the Wall Street consensus price objective is $43.50. The stock closed Monday at $39.68.

Check Point Software Technologies

This remains one of the top tech stocks to buy on Wall Street for a security presence. Check Point Software Technologies Ltd. (NASDAQ: CHKP) provides network security solutions, selling software, hardware and subscription services for IT security with a focus of reducing complexity of security management. Its hardware is based on a software blade architecture that allows for multiple security functions to be run concurrently. Check Point sells its solutions to service providers, small and medium-sized businesses, consumers and enterprises, including all the Fortune 100 companies.

The company reported better-than-expected quarterly results, with strong guidance on new customer wins and double-digit growth in sales of new firewall units. The company’s guidance for this year implies solid revenue growth acceleration, driven by strong appetite for newer products.

The Jefferies report noted:

We believe that Check Point should continue to benefit from the trend towards security platforms as customers seeks to reduce complexity in their architecture. The company has historically been well run and managed for the long-term. New business appears to be re-accelerating, with two quarters of strong growth after several weak quarters.

The $116 Jefferies price target is well above the consensus target of $96.14. Note that shares closed on Monday at $97.79.

CommVault Systems

This stock has traded sideways since last summer and may be ready to break out. CommVault Systems Inc. (NASDAQ: CVLT) is a leading provider of data protection and information management solutions, helping companies worldwide activate their data to drive more value and business insight and to transform modern data environments. With solutions and services delivered directly and through a worldwide network of partners and service providers, CommVault solutions comprise one of the industry’s leading portfolios in data protection and recovery, cloud, virtualization, archive, file sync and share.

The company’s exclusive single-platform architecture gives companies unprecedented control over data growth, costs and risk. CommVault’s Simpana software suite of products was designed to work together seamlessly from the ground up, sharing a single code and common function set, to deliver superlative data protection, archive, replication, search and resource management capabilities.

The $64 Jefferies price target compares with the consensus target of $61.73. Shares closed Monday at $55.85.

RingCentral

This is one of the smaller cap names that Jefferies is positive on for 2017. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing and integration with document and customer relationship management systems.

Late last year the company provided new data coupled with strong acknowledgement about product, platform and competitive position from three panels. RingCentral unveiled new metrics demonstrating a sustained shift to higher quality revenues and balanced growth. Many on Wall Street feel the company can get to $1 billion in revenue over the next five years, and Jefferies also feels the company could be a takeout candidate.

Jefferies has a $29 price target, the same as the consensus target. Shares closed yesterday at $23.50.

Apptio

This small cap company also could be in the sights of a larger player, and it had a reasonably hot IPO last year. Apptio Inc. (NASDAQ: APTI) is the leading cloud provider of technology business management (TBM) software solutions to global enterprises. Apptio’s cloud based software-as-a-service (SaaS) platform helps chief information officers and IT professionals strategically manage and forecast IT costs. As of last year, the company had over 325 customers across a wide range of industries.

Apptio currently sells five applications: Cost Transparency, IT Benchmarking, Business Insights, Bill of IT and IT Planning. In November the company announced several new modules and feature additions at the annual TBM Conference in San Diego. New modules (Project Financial Planning, Services Demand Planning & SaaS Insights) will be sold separately from the core app. Top Wall Street analysts were encouraged by these releases and believe the company may be positioned as the best of breed TBM vendor.

The Jefferies price target is $29. The consensus target is $24.71, and shares closed on Monday at $15.97.

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Five solid companies that all have good prospects for 2017. More conservative investors may want to stay with the large cap leaders, while aggressive accounts may want to focus on the smaller cap companies.

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