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Best Software Stock

Best Software stocks to buy

If you are looking for information about software stocks, you came to the right place! In this article I will provide you with a list of software stock that will help you decide if stocks in certain niches are interesting as an investment.

What is an software stock?

Software stocks are simply stocks in publicly traded companies that are focused on the development and selling of software to end users. Software stocks usually generate income via selling licenses (or usage) to the end users over time (called recurring revenue).

Why invest in software stocks?

When it comes to investing, the most important thing that I consider is safety. There are two things that make software stocks safe investments:

  1. Investing in software stocks already shows a large revenue stream (e.g. Microsoft, Oracle), this means that they’re pretty much set for life and don’t need to go out of business.
  2. The software development cycle is long, which means that new versions or updates are released on a regular basis. This makes it possible to keep selling licenses (or usage). A new version/update usually includes bugfixes and added functionality; if the update is better than the previous versions (e.g. v7 > v8), it will probably sell pretty well.
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What makes for good software stocks?

There are three things to consider when looking at other individuals holdings:

  1. Asset Type (Cash, Bonds, Stock) – How easily can I find this asset type in the market? What is the volatility of this asset type? Is it easy or difficult to transact? etc.
  2. Revenue Stream (Recurring, Non Recurring) – How quickly does the revenue flow in and how quickly can it be discontinued? How predictable is this cashflow? Is there a lot of financial leverage involved in generating this revenue stream? Are we talking about one-time fees or monthly payments?
  3. Business Model – How predictable is the distribution of revenue? Is this a business model that can easily be copied by competitors ? What does the company do to keep customers?

As you can see, there are several things I look at. For this article I decided to stick with a list of reliable software stocks that had a recurring revenue stream and were easy to find.

Advantages software stock

  • No employees – most software stocks do not have any employees, which means that most costs can be reduced to a minimum (btw: investors hate companies with lots of fixed and variable cost)
  • International growth potential with few barriers – because most software products are digital, there is no need for assembly or packaging. This means that you have little or no cost to expand your customer base outside of the country you’re based in. With a small marketing budget, it’s possible to create a global brand overnight!
  • Software stocks can be used as a safe haven in times of uncertainty – when investors are nervous and looking for something that they can hold on, software stocks usually rise because most people don’t want to lose money.

Disadvantages software stocks

  • Software is easy to copy – it’s very difficult for a company that develops and sells software to keep its customers (and revenue stream) if their products are easily copied by competitors. This means that these companies must always stay ahead of the competition or face extinction .
  • Software is not as tangible as people would like – most people expect a product they buy to increase in value. This however doesn’t apply for software or digital goods (music, video etc.) because it can easily be copied and spread over the internet.

The Best Software Stocks Of 2021

We made a list of the best software stocks to invest in for the next 5 years. We analyzed all the software stock from different niches and made a list of those that have one or more important characteristics: good dividend yield, high expected growth rate, great assets under management (AUM) and low risk.

  1. Microsoft Corporation (NASDAQ:MSFT)
  2. Salesforce.com, Inc. (NYSE:CRM)
  3. Sea Limited (NYSE:SE)
  4. Adobe Inc. (NASDAQ:ADBE)
  5. Workday, Inc. (NASDAQ:WDAY)

1. Microsoft Corporation (NASDAQ:MSFT)

Microsoft Corporation is a software company that develops, manufactures, licenses and supports a range of software products for computing devices. The Company’s segments are: Productivity and Business Processes, Intelligent Cloud and More Personal Computing.

Productivity and Business Processes segment consists of products aimed at businesses, such as Microsoft Office suite consisting of applications like Word, Excel, PowerPoint and Outlook, and server products such as Exchange, SharePoint and Skype for business. Intelligent

2. Salesforce.com, Inc. (NYSE:CRM)

Salesforce.com, Inc., is a provider of enterprise cloud computing and social enterprise solutions. The Company’s segments include: Sales Cloud, Service Cloud, Marketing Cloud, App Cloud, Community Cloud and Analytics.

Sales Cloud empowers sales organizations to connect with customers in a more personal way through social selling techniques such as e-mail conversations, blog posts, commentary in social media and customer-generated content.

Sales Cloud is focused on building smart, self-learning software that proactively engages customers based on their behavior and needs. Service Cloud is focused on helping organizations provide great service to their customers

3. Sea Limited (NYSE:SE)

Sea Limited provides online development platforms for the mobile Internet, including Android and iOS. It also enables online advertising with its mobile development platform and its advertising services.

Sea Limited provides a range of products and services for operators to manage their mobile businesses:

  • User acquisition;
  • Engagement and monetization;
  • Traffic quality assurance;
  • SDKs and APIs product developer programs;
  • App store distribution platforms;
  • Data management platforms;
  • Data business;
  • Mobile marketing services, community, and analytics dashboard.

The company operates internationally through its subsidiaries.

4. Adobe Inc. (NASDAQ:ADBE)

Adobe is focused on helping customers create, deliver and market content across various channels such as print, web or mobile devices. The Company offers creative and graphics software, not only from Adobe but from certain key partners.

Its products include Photoshop and related digital imaging products, also the next products are made and owned by Adobe:

  • Illustrator and related digital publishing software;
  • InDesign and related digital publishing software;
  • Acrobat and related document conversion software;
  • Flash and related interactive authoring tools;
  • Dreamweaver and related web development tools;
  • Fireworks and related graphics tools;
  • Contribute and other products.

5. Workday, Inc. (NASDAQ:WDAY)

Workday provides cloud-based applications that enable enterprises to manage their employees’ financial well being, operational health and human capital well being, vis a jour insights into the productivity of the entire workforce for maximum business benefit.

  • Workday has two lines of business: Cloud Financial Management and Human Capital Management. Cloud Financial Management includes providing accounting, payroll, tax and financial reporting capabilities.

Human capital management includes:

  • Timesheet entry and approval;
  • Automated time off tracking;
  • Human resources information system (HRIS);
  • Self-service tools to help employees manage their benefits and rewards programs;
  • Recruiting systems that include sourcing applications designed to identify qualified candidates for open positions;
  • On-boarding applications that can establish a new employee’s identity and accelerate its access to company systems;
  • Learning management system (LMS) aimed at helping employees develop their skills.
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How to invest in software stocks?

How to invest in software stock, you can buy them with a broker . You can use online stock broker, or you can go to a bank and ask about the brokerage service they offer. As far as software stocks are not traded on major exchanges, brokers may have limited number of shares for buying. Most popular software stocks are offered by brokers like eToro, DEGIRO and Interactivebrokers.

How to find the best software stocks?

There are a few ways to find the best software stocks to buy right now, even though the software sector is very hard to invest in. One way is to just look at how many users a given company has cumulatively, since that often indicates how much loyalty it commands from its user base and how much revenue it can gain by increasing its user count.

Another way is to look at the sell-side ratings of research firms such as Goldman Sachs and find out which companies they have the most bullish ratings for. In this case, Workday Inc (NYSE:WDAY) has a buy rating from all three of the leading analysts following it , while none of them have Sell ratings on either Sea Limited or Adobe Systems, Inc. (NASDAQ:ADBE).

The best software stocks to buy today might be some of the smaller software companies too, as those are often more undervalued and therefore offer a larger margin of safety. In this case, Workday Inc (NYSE:WDAY) is the best software stock to buy now since it has been growing its revenue by at least 30% on a year over year basis.

Conclusion about software stocks

As you can see, there are many sectors of the stock market that still offer plenty of opportunity to grow your money, even after the great recession. The best way to invest in these different sectors is by diversifying your portfolio so that if something doesn’t workout as expected, another asset will balance it out.

The software sector is one of the most attractive ones today, even though it has fallen out of favor in recent years. It offers not just great growth potential but also high barriers to entry that ensure that only the strongest companies can survive in this market.


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Frequently asked questions

You can value software stocks with the Price-to-sales ratio:

The price-to-sales (P/S) ratio, which equals a company’s market capitalization divided by its annual revenue, is often used as a valuation metric for SaaS companies in place of the P/E ratio.

Technology stocks are perennially one of the hottest areas of the stock market. Investors closely follow this sector because of its track record of scorching returns and the potential for more in the future.

Perhaps one of the most generous tech dividend stocks lately, online security firm McAfee declared a special dividend of $4.50 in August, a massive payday on top of its ongoing 11.5-cent quarterly distribution. And by the way, that dividend is up from 8.7 cents at the end of 2020.

The pace of technological innovation, one of the many reasons why stock volatility has increased over the past few years, has disrupted many sectors of the market, including the finance world. Even established financial institutions are finding it hard to predict future market direction at this point.

Though the S&P 500 Information Technology index is up roughly 21% this year, some bullish analysts see a strong further rally in tech stocks through the rest of 2021, juiced by the Federal Reserve’s steady and soothing messaging and the sector’s strong fundamentals.

Best software stocks to buy according to hedge funds:

  • Intuit Inc. (NASDAQ:INTU)
  • Snowflake Inc. (NYSE:SNOW)
  • Workday, Inc. (NASDAQ:WDAY)
  • MercadoLibre, Inc. (NASDAQ:MELI)
  • Activision Blizzard, Inc. (NASDAQ:ATVI)
  • Twitter, Inc. (NYSE:TWTR)
  • Adobe Inc. (NASDAQ:ADBE)

It is possible to find undervalued software stocks with the Price-to-book (P/B) ratio:

You can find a company’s P/B ratio by taking its share price and dividing it by its book value (assets minus liabilities) per share. A P/B ratio under one is usually an indication of a potentially undervalued stock because it means the market is valuing a company less than its on-paper value.

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