Three Software Buys

December 21, 2017 01:45 PM

If you want to invest in the hot technology sector, but are looking to drill down to a more specific niche, you may want to look at the Business Software Services sub-sector. This is a Zacks industry sub-sector with 12 public companies. This active information technology niche is currently ranked #21 out of the 265 sectors Zacks rank, which puts it in the top 8%.

The 2017 year-to-date return is 28%. Further, it doesn’t look like covering analyst earnings upgrades will stop arriving anytime soon. Evidence for that is that eight companies in the sector have recently been upgraded in our system, with only one downgrade. The proprietary Zacks heat map shows this group has stayed hot, going back eight weeks in a row, and it is getting hotter over time.

A recent industry report by Grand View Research stated that traders should expect the global business software and services end markets to grow smartly. They say this is primarily due to a relentless need for transparency and efficiency in ever more complex, information technology-oriented internal business functions.

Furthermore, compliance with stringent government regulations assists the broad implementation of such software. Business software can improve productivity and minimize complexity. Often known as enterprise software and services by this ‘wonkie’ crowd, their programming efforts facilitate the integration of numerous business processes.

Their latest software upgrades assist a smoother flow of information across functions. That makes for quicker decision making and speeds up both worker and machine-based productivity. The business software industry segments its programming effort based on functions; usually into finance, human resource and supply chain.

The finance function accounts for a maximum share of activity. Software makes it easy to manage different financial activities including investment, accounting, asset management and cash flow management. Yet, the human resource function should show the maximum growth. This is due to ballooning organizations in rapidly expanding companies.

A high cost of implementation, and a high level of competition within this very established market, act as the major restraints for those in the business.

Three top Zacks Picks include Synnex Corp. (SNX), a Zacks Rank #1 (STRONG BUY); Cognizant (CTSH), a Zacks #2 Rank (BUY) and Wipro (WIT): A Zacks Rank #2 (BUY).

About the Author

John Blank, Zacks Research