Three software investments to buy as technology stocks start to fly feature a a next-generation cyber security company, a provider of artificial intelligence (AI) and automation capabilities, along with a fund that focuses on companies engaged in software applications, systems and information-based services.
The three software investments to buy allow investors to tap into technology stocks that are making a comeback so far this year. Despite headwinds of inflation, tight money, a brewing banking crisis and gridlock in Washington about raising the U.S. government’s debt ceiling, the technology-tilted NASDAQ has soared 26.60% year to date.
Investors who are wary of purchasing individual software stocks may prefer a fund, said Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter. One such fund that Carlson said he likes is Invesco Dynamic Software (PSJ), aimed at tracking the Dynamic Software Intellidex Index that consists of approximately 30 companies engaged in businesses related to software applications, systems and information services.
PSJ Ranks Among Three Software Investments to Buy
Bob Carlson, head of Retirement Watch, meets with Paul Dykewicz.
The index is updated quarterly to incorporate factors such as price momentum, earnings momentum, quality, management action and value. The fund’s turnover ratio is more than 200%.
About 49% of the fund is in its 10 largest positions. Top holdings recently were Electronic Arts (NASDAQ: EA), Forinet (NASDAQ: FTNT), Activision Blizzard (NASDAQ: AITI), Cadence Design Systems (NASDAQ: CDNS) and The Trade Desk (NASDAQ: TTD).
PSJ lost 27.73% in 2022 but is up 11.91% so far in 2023 and 8.50% over the last 12 months. The fund also offers a modest dividend yield of 2.0%.
Chart courtesy of www.stockcharts.com
Another fan of technology funds is Mark Skousen, PhD, an economist who serves as a Presidential Fellow at Chapman University and heads the Forecasts & Strategies investment newsletter. He recommended a technology fund in his newsletter that has climbed 27%, including dividends, so far this year.
Mark Skousen, head of Forecasts & Strategies, meets with Paul Dykewicz.
Skousen, who is a descendant of founding father, diplomat and inventor Benjamin Franklin, pointed out that the fund was heavily weighted in some of the strongest-rising technology stocks. One of those stocks is Microsoft (NASDAQ: MSFT), a software development company in Redmond, Washington, that has jumped 34.49% so far this year.
CrowdStrike Gains Place Among Three Software Investments to Buy
CrowdStrike Holdings, Inc. (NASDAQ: CRWD), headquartered in Austin, Texas, is a next-generation protection, threat intelligence and services company. The company relocated from Sunnyvale, California, in December 2021, but still retains a significant business operation in Silicon Valley at its former headquarters.
CrowdStrike is considered to be a leader in cybersecurity for the endpoint market-phones and laptops. Microsoft also offers a cybersecurity solution but it is considered to be “inferior,” compared to CrowdStrike, said Michelle Connell, who heads the Dallas-based Portia Capital Management.
Even so, Microsoft’s status as a software industry “behemoth” is always a potential problem for competitors such as CrowdStrike, Connell continued. CrowdStrike’s revenue growth is expected to remain exceedingly high, with 35% growth expected in 2023, she added.
Michelle Connell heads Portia Capital Management.
“The company has 30% free cash flow margins,” Connell said. “While these are very rich, the company expects them to go even higher.”
CrowdStrike’s management is offering guidance of a 33% gain in cash flow margins this year. The company also has amassed a “huge war chest” of $2.7 billion in cash, Connell noted.
Plus, CrowdStrike’s business focus targets an area of technology that should continue to do well, no matter the economic environment, counseled Connell, who added that the company’s growth expectations are achievable.
Despite the company’s stock price advancing 37% year to date, its potential upside could be in excess of 25% during the next 18 to 24 months, Connell concluded. In addition, Connell advised dollar-cost-averaging and viewing CrowdStrike as a long-term holding.
Chart courtesy of www.stockcharts.com
Potential risks for CrowdStrike include the possibility that its possession of what Connell called the “best solution” in the industry could change. For example, Microsoft could acquire one of CrowdStrike’s smaller competitors, improve upon the product offering and gain market share, Connell cautioned.
“There’s a valuation risk here,” Connell said. “The stocks current price may be ahead of itself. However, the long-term opportunities seem to outweigh that.”
“We believe investors may not be appreciating how large and how profitable CrowdStrike can become over the long term, based on its strong growth and operating leverage potential,” according to the Chicago-based investment William Blair, which has an “outperform” rating on the stock.
Three Software Investments to Buy Include CCCS
CCC Intelligent Solutions Holdings Inc. (NASDAQ: CCCS) , a Chicago-based software as a service (SaaS) platform for the property and casualty (P&C) insurance industry, recently held an event that included more than 500 customers across stakeholder segments to highlight its broad AI and automation capabilities. Plus, CCC Intelligent Solutions hosted an investor session that addressed the company’s recent innovation and highlighted the drivers supporting its long-term business fundamentals.
“Our customer conversations continued to highlight the value proposition afforded by the CCC connected ecosystem, while management’s tone continued to highlight the capabilities of its advanced analytics platform and claims automation efforts,” wrote Dylan Becker, a William Blair equity research analyst who covers software stocks. “The investor session also included deep dives into new emerging technologies like diagnostics, Estimate-STP, casualty and subrogation.”
CCC Intelligent Solutions seems well positioned to serve its customers due to its decade-plus-long investment in AI functionality and data scale across the automotive claims’ ecosystem, which can continue to drive ongoing future innovation and automation efforts, Becker wrote in a recent research note. Overall, Becker wrote that the conference gave him incremental confidence in the company’s ability to capitalize on the automotive claims digitization opportunity, which should drive a durable combination of top-line growth and margin expansion over time.
“This unique and differentiated data drives value across all stakeholders within the connected ecosystem from repair facilities to part providers and OEMs, as well as insurers, among others,” Becker continued. “We believe this will continue to drive deeper product adoption and broader platform value as the network effect of a connected stakeholder ecosystem continues to play out. Lastly, while the company is still in the early stages of overall AI adoption, encouragingly the company has analyzed more than 14 million cumulative claims across its AI tools to date, which we believe will continue to support growing adoption and model precision from these solutions over time.”
William Blair is retaining its “outperform” rating on the stock.
Chart courtesy of www.stockcharts.com
“CCC delivered strong first-quarter results, highlighted by 10% year-over-year revenue growth and 39% adjusted EBITDA margin,” the company announced.
The company’s “solid start” to 2023 reflects its durable business model, ongoing innovation, and continued adoption of CCC solutions that help its clients address a growing number of the business challenges facing the P&C insurance economy, said Githesh Ramamurthy, the company’s chairman and chief executive officer.
CCC Intelligent Solutions’ shares trade at roughly seven times William Blair’s calendar 2024 revenue estimate, a discount to the peer group median of nine times. On an enterprise value (EV)/earnings before interest, taxes, depreciation and amortization (EBITDA) basis, shares trade at 17 times the investment firm’s 2024 estimate, a discount to peers at 23 times.
“Overall, we believe the discount is unwarranted as CCC is well positioned in a resilient end-market offering mission-critical tools to drive business efficiency,” Becker wrote.
Analysis of U.S. Government Debt Ceiling Problem
The failure of the U.S. government to raise the debt ceiling thus far and risk possible default on its financial obligations would be the “ultimate gift” for China, warned the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations. Nigel Green’s comments come as President Joe Biden, House Speaker Kevin McCarthy and other congressional leaders so far have been unable to successfully negotiate a heightened debt ceiling.
President Biden has been reluctant to give details about terms of possible compromise but has said he believed a deal can be reached. Democrats have demanded a “clean” increase in the ceiling without conditions to pay debts from spending and tax cuts approved by Congress. Republicans are saying they will not authorize any additional borrowing without an agreement to cut federal spending.
According to the U.S. Department of the Treasury, a default may occur as soon as June 1, causing a global economic catastrophe, if the limit is not raised by Congress before then. The deVere Group CEO Green cautioned that a default would upend the global financial system and likely be “worse” than the 2008 crash.
“It would cause upheaval on an unprecedented level,” Green said.
A default would lead to a decline in the value of the U.S. dollar and a loss of confidence in the U.S. financial system, Green said. As such, investors would seek alternative destinations for their capital, he added.
“China would move to position itself as a more stable and attractive investment option, attracting more international investment and capital inflows,” Green said. “In turn, this would boost the Chinese economy and financial markets.”
CDC Halts Weekly Reports of COVID-19 Vaccinations and Cases
The COVID-19 pandemic’s public health emergency status in the United States expired on May 11, 2023, while the World Health Organization earlier this month declared an end to what it began calling a public health emergency of international concern on January 30, 2020. However, the virus keeps killing Americas each week and remains a public health threat. Even though death rates are dropping, Dr. Robert Anderson, the chief of the mortality statistics branch at the National Center for Health Statistics, warned that COVID-19 deaths could top 100,000 in 2023.
The U.S. Centers for Disease Control and Prevention (CDC) reported at least one vaccination against COVID-19 and its bivalent variant has been given to 270,227,181 people, or 81.4%, of the U.S. population, as of May 10. Those who have completed the primary COVID-19 doses totaled 230,637,348 of the U.S. population, or 69.5%, according to the agency.
Also as of May 10, the United States had given a bivalent COVID-19 booster to 52,996,306 people who are age 18 and up, equaling 20.5% of America’s population. Those reports are the last weekly updates that CDC officials plan to provide after the agency called an end to the U.S. public health emergency.
Medical studies have shown COVID-19 vaccinations help keep people healthy and reduce the morbidity caused by the virus. The markets should be helped by any incremental increase in consumer confidence that aids retail shopping, travel and other spending.
Russia’s War in Ukraine Remains a Fierce Firefight
Russia’s ongoing war in Ukraine poses a lingering financial threat. News from the war zone reported that Russia largely has taken control of the Ukrainian city of Bakhmut. Russia’s President Vladimir Putin reportedly plans to use the city as a transportation hub to then seize other places in Ukraine’s industrial eastern region.
However, Ukrainian forces remain in the area, largely outside the city, and could pose a challenge to uproot completely. rces, said Yevgeny Prigozhin, the private militia’s leader.
Despite Ukrainian President Volodymyr Zelensky talking publicly of delaying Ukraine’s expected spring counteroffensive, his forces have made some incursions, said Yevgeny Prigozhin, the leader of the private Wagner militia that has been doing some of Russia’s most effective fighting. Russia continues firing missiles at Kyiv and other Ukrainian cities.
The three software investments to buy are on an upward trend, despite economic uncertainty, inflation, tight money, a brewing banking crisis, gridlock in Washington about raising the U.S. government’s debt ceiling and the ongoing political risk from Russia’s relentless invasion of neighboring Ukraine in violation of international law.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal omf Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.