Microsoft (MSFT) shares were pounded yesterday as investors turned leery of a business transition that didn’t provide many details.
Management said that results were impacted by a weak PC market, difficult comps, a strong dollar (impacting Asia sales in particular) and Office transition to the cloud and most of this was already known to investors. But they probably wanted more granularity on the transition and a timeline for recovery of the increased investment in new products.
Analyst commentary also turned cautious, further hurting sentiments.
But that doesn’t mean a lack of opportunity in the software segment. In fact, software is quite an attractive segment right now because it is hard to commoditize the technology and easy to patent. Moreover, it is the foundation for the ongoing revolution in computing, security, networking and ecommerce among other things.
So investors looking for an exposure to software may want to consider these stocks instead:
Adobe Systems (ADBE)
Shares of this software company focused on creativity and marketing solutions gained 6.6% in the last three months, as investors cheered the company’s accelerated push to the cloud. The past year hasn’t been easy for the company and sales grew low single-digits. But analysts are now projecting sales growth of 17% in the current fiscal year as well as a 9.3% increase in earnings over the next 3-5 years.
The company also has a good track record: its beaten estimates in each of the last four quarters at an average rate of 28.6%. Moreover, estimates for 2015 and 2016 have jumped a respective 9 cents and 20 cents in the last 60 days. Adobe also carries a Zacks Rank #2 (Buy).
Impervia Inc. (IMPV)
This Zacks Rank #1 (Strong Buy) company that offers security solutions for data centers has seen share prices jump 9.3% in the last three months. Analysts are very positive about its prospedcts. Impervia is expected to deliver revenue growth of 22% this year, up from around 18% last year.
The company has yet to turn a profit, although its losses are trending down. Although it missed bottom line expectations in the Dec 2013 quarter, the next three quarters saw consistently positive surprises of 17-19%.
Verint Systems (VRNT)
This Zacks Rank #2 company makes security and intelligence systems for government, law enforcement, critical infrastructure and commercial entities, but also has solutions for retail, financial services and telecom sectors. Verint has beaten the Zacks Consensus Estimate in each of the last four quarters at an average rate of 18.8%.
Estimates for the current and next fiscal years ending January have increased 2 cents and 8 cents respectively in the last 60 days. The company is expected to see solid revenue growth this year — up nearly 26% compared to around 8% last year. Earnings growth will be lower but also decent at around 10%.
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