While 2017 was an outstanding year for technology, investors in the software segment had plenty more to cheer about. Software rose a stunning 42%, versus the S&P 500’s 19.4%, and also well ahead of the $28.2% gain for the Nasdaq. While there is no guarantee that gains will continue, and valuations have been pushed to at or above peak levels, secular forces within the sector remain very positive, and picking the right stocks may provide another year of solid gains.
A new Jefferies research report features the firm’s 2018 outlook on the software arena, and it notes the declining price of foundational computing technology as a huge positive for the sector, which could drive sales for years to come. The report said this:
We believe secular forces are as positive as we’ve seen in nearly two decades of covering Software due to advances in foundational computing tech that have turned the economic equation on its head, while cyclical forces are also on the upswing, reflected in rate hikes that could have an opposite effect.
The Jefferies analysts have three top pick companies for 2018 and also upgraded two top companies to Buy as they see solid value.
This small-cap company could be in the sights of a larger player and is a top pick at Jefferies for 2018. Apptio Inc. (NASDAQ: APTI) is the leading cloud provider of technology business management (TBM) software solutions to global enterprises. Its cloud-based software-as-a-service (SaaS) platform help 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 and SaaS Insights) will be sold separate 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 for the shares is $30. The Wall Street consensus target is $25.56. Shares closed on Monday at $24.37.
Jefferies raised this stock to Buy and it is also a top 2018 play. Alarm.com Holdings Inc. (NASDAQ: ALRM) is a leader in the smart home with its cloud and subscription-based platform that has redefined traditional home security and offers variety of interactive services, such as interactive security, home automation, energy management, wellness and other for both residential and commercial customers.
Jefferies believes Alarm.com has among the largest platforms in the marketplace, with 5 million subscribers and more than 25 million connected sensors and devices, processing 20 billion data points per year.
Jefferies lifted its $44 price objective to $46, and the consensus target price is $48.75. Shares closed Monday at $38.70.
Jefferies also raised this stock to Buy and is very positive on the shares. NICE Systems Ltd. (NASDAQ: NICE) is a global enterprise software provider. Its segments include Customer Interactions Solutions, which provides data-driven insights that enable businesses to deliver personalized experience to customers, and Financial Crime and Compliance Solutions.
The company serves contact centers, back office operations and retail branches, covering various industries, including communications, banking, insurance, health care, business processes outsourcing, government, utilities, travel and entertainment.
The $87 Jefferies price target was raised to $112. The consensus target is $87.89, and shares closed Monday at $91.60.
This top software stock offers a very good entry point and is another top pick for 2018 at Jefferies. 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.
Shareholders receive a 1.5% dividend. The Jefferies price target is $61. The consensus target is $55.77, and shares closed Monday at $50.71.
Palo Alto Networks
This company was a momentum trader’s dream for years and is a top 2018 pick at Jefferies. Palo Alto Networks Inc. (NASDAQ: PANW) develops and sells network security gear, dubbed Next-Generation Firewalls, that protect customers’ networks with the ability to read the content of the traffic (not only its address) and make decisions based on the type of application and a set of access policies.
Palo Alto Networks offers parallel processing of security functions, while some of its competitors offer serial processing mechanisms, which result in a degradation of throughput or speed of the network.
The company’s reported fiscal first-quarter results in November were better than expected, and second-quarter guidance was strong as product revenue outperformed. The core product refresh, sales reorganization and new/unattached product traction all help growth tailwinds. Software subscription sales grew a strong 40%.
Jefferies has set its price target at $183, and the consensus target is $167.87. Shares closed Monday at $153.87.
The Jefferies analysts have done some solid “stock picking” for clients, and the top stocks to Buy all make sense for what could be slower 2018. Staying away from big momentum plays and looking to companies growing their franchises looks like a good plan for the next 12 months.