When you are a purchaser in departments and agencies of the vast U.S. government infrastructure, you are always pressed with the budget edict of “Use it, or lose it.” In other words, spend all your yearly allocated budget or lose what’s left. None of it rolls forward or is credited. With that in mind, a tidal wave of government spending is coming in September, and some top software stocks look to benefit.
A new Stifel research report notes that a huge pile of funds are there for the spending in September, according to Nextgov.com, a website that tracks and focuses on federal government spending.
The report noted this when discussing an article from the website:
To put this in perspective, the article indicates that these agencies now have $140 billion more to spend than they did before President Trump signed the omnibus spending bill in late March 2018. Additionally, many of these same agencies were fairly conservative in their spending during the first half of fiscal year 2018 given the lack of a budget at that time. We note that through the first 9 months of the fiscal year, civilian agency spend is down about $3 billion year-over-year while defense spend is running about $20 billion beyond last year’s level through the first half of the fiscal year. While this expected dramatic ramp in spending will impact all manner of goods and services, we believe that software vendors are especially well positioned to benefit from ongoing Federal government application and infrastructure modernization efforts, both on-premise and in the cloud, as well as cyber security efforts.
We picked five companies that look to benefit the most. All are good stocks to own in aggressive growth accounts.
This company has come into the spotlight as a potential takeover candidate, and it gets 10% to 15% of revenue from government spending. Citrix Systems Inc. (NASDAQ: CTXS) is leading the transition to software-defining the workplace, uniting virtualization, mobility management, networking and SaaS solutions to enable new ways for businesses and people to work better.
Citrix solutions power business mobility through secure, mobile workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. Strategic mergers and acquisitions and internal development have expanded Citrix’s addressable markets beyond access to legacy Windows applications to include desktop and server virtualization, team collaboration and application networking.
The Wall Street consensus price target is $116.31, and the shares closed trading on Monday at $110.97.
This top old-school technology stock has posted all-time highs this year and has a massive $132.7 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.
Many 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 its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the recent earnings report which was outstanding.
Microsoft also is expected to be a big winner in the new Department of Defense cloud project. In fact, Microsoft and its dedicated Azure Government segment appear to be the main challenger to Amazon’s AWS service, with industry checks barely mentioning IBM and Google, and countering that Oracle has little traction as a provider of modern cloud infrastructure services to the U.S. federal government.
Microsoft shareholders receive a 1.54% dividend. The posted consensus price objective is $121.70. The shares closed Monday at $108.21.
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