Analysts love these software and services stocks.
The technology sector has once again outperformed the S&P 500 in the past year, and many software and services stocks have been top gainers. The global health crisis accelerated the digital transformation of the global economy, and software and online services are playing a central role in that transformation. Grand View Research projects that the global business software and services market will grow to reach nearly $912 billion by 2028. For investors looking to profit off that boom, here are eight of CFRA Research’s top software and services stocks to buy in the second half of 2021.
Microsoft Corp. (ticker: MSFT)
Microsoft is one of the few legacy tech companies that has effectively adapted its business model to maintain its leadership position in the past 20 years. Microsoft Azure is the top competitor to Amazon Web Services in the cloud services space. Analyst John Freeman says the long-term economic shift toward cloud computing is gaining momentum, and Azure’s 51% revenue growth in the most recent quarter is evidence that Microsoft is capturing a large part of that market. Freeman is also bullish on Microsoft’s expanding operating margins. CFRA has a “strong-buy” rating and a $362 price target for MSFT stock.
Visa Inc. (V)
One industry that technology is disrupting faster than ever is the financial sector, and credit card giant Visa is a leader in digitizing finance and payments. Analyst Chris Kuiper says Visa’s payment volumes are now 121% of pre-pandemic levels in 2019, but cross-border payment volumes are still just 82% of pre-pandemic levels. Global economic repenings are a tailwind for Visa, and Kuiper says investors aren’t fully appreciating the long-term trend away from cash. Kuiper says open banking could also be a significant growth driver for Visa. CFRA has a “buy” rating and a $270 price target for V stock.
Mastercard Inc. (MA)
Mastercard is also riding the wave of global payment digitization and the shift away from cash usage. Kuiper says the mobile and electronic payments markets are approaching an inflection point, and the market isn’t fully valuing the potential positive impact for Mastercard. He says Mastercard has an attractive asset-light business model that helps support superior operating leverage. International expansion, market share gains and mobile payments are all potential long-term growth opportunities as well. Kuiper projects that Mastercard will maintain annual revenue growth of more than 15% through at least 2023. CFRA has a “buy” rating and a $410 price target for MA stock.
Adobe Inc. (ADBE)
Adobe is the market leader in creative content software along with marketing automation and e-commerce software. Adobe shares are up more than 500% over the past five years, but Freeman says there are several reasons why they are still undervalued. Adobe has a “dominant” share of the content creation market, which is growing by 15% annually. Its high-margin Document Cloud business is growing at a 33% annual rate. Freeman says Adobe has an excellent management team that has perfectly executed its shift to a “tethered cloud” model. CFRA has a “strong-buy” rating and a $666 price target for ADBE stock.
Salesforce.com Inc. (CRM)
Salesforce is the market leader in customer relationship management software and is a pioneer of the cloud software as a service model. Freeman says Salesforce is the best pure-play stock investment in the migration to cloud services. He estimates that Salesforce already has a 27% market share of the customer relationship management market — a number he expects will continue to grow. A decade of acquisitions, including the recent $27.7 billion Slack buyout, has beefed up Salesforce’s product offerings into the most comprehensive and feature-rich portfolio in the market, Freeman says. CFRA has a “strong-buy” rating and a $300 price target for CRM stock.
Accenture PLC (ACN)
Accenture is a global consultancy, technology and outsourcing services provider. Analyst David Holt says the company has an attractive cash flow profile, generates above-average earnings growth and has an impressive competitive positioning. At its current valuation, investors may not fully appreciate the sustainability of Accenture’s bookings growth as the company gains market share in the long term. Holt says digital, security and cloud initiatives create a differentiated growth catalyst for Accenture. He projects 10% revenue growth in fiscal 2021 and another 7% growth in fiscal 2022. CFRA has a “buy” rating and a $321 price target for ACN stock.
ServiceNow Inc. (NOW)
ServiceNow provides software as a service applications to manage business processes and workflows. Freeman says there are plenty of reasons to be bullish on ServiceNow. The stock is highly exposed to secular growth drivers, including cloud migration and digital transformation. ServiceNow has a growing ecosystem of third-party relationships and partners, and Freeman estimates that it has the potential to grow margins to at least 34% over time. ServiceNow’s deep product integration creates stickiness and pricing leverage. Finally, ServiceNow has the opportunity to expand further outside the information technology services management market. CFRA has a “strong-buy” rating and a $625 price target for NOW stock.
Fidelity National Information Services Inc. (FIS)
Fidelity National Information Services specializes in financial technology solutions for customers ranging from merchants to banks to capital market firms. Holt says Fidelity is an attractively valued bet on secular growth trends in payments and banking. He is expecting a rebound in sales in the second half of 2021 as the global economy recovers from the health crisis. In the long term, Holt says Fidelity has organic growth potential, particularly in e-commerce and merchant integrated payments. Holt forecasts 9% revenue growth in 2021 and 2022. CFRA has a “strong-buy” rating and a $180 price target for FIS stock.
Software and services stocks to buy in 2021:
— Microsoft Corp. (MSFT)
— Visa Inc. (V)
— Mastercard Inc. (MA)
— Adobe Inc. (ADBE)
— Salesforce.com Inc. (CRM)
— Accenture PLC (ACN)
— ServiceNow Inc. (NOW)
— Fidelity National Information Services Inc. (FIS)
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