Like most technology segments, the software industry has witnessed a massive sell-off this year due to the Fed’s aggressive interest rate hikes. The rising borrowing costs due to the unprecedented interest rate hikes this year have worried investors about the prospects of software companies.
However, the central bank’s rate hikes seem to be paying off as inflation eased in October, with the consumer price index (CPI) rising 7.7% year-over-year and 0.4% sequentially, lower than expected.
Fed Chair Jerome Powell recently signaled a potential slowdown in interest rate hikes. The expectation of smaller interest rate increases starting this month has boosted investor sentiments. The three major U.S. stock indices posted their second consecutive month of gains. As interest rate increases are expected to slow, the pressure on software companies might reduce.
Despite the inflation, rising interest rates, and layoffs, the software industry’s long-term prospects remain bright, thanks to increasing digitization and automation of business operations and continued hybrid work culture.
The global software market is expected to grow at a CAGR of 8.7% to reach $91.60 billion by 2028. Also, increased corporate and government spending in this space should boost the industry’s prospects.
Given this backdrop, it could be wise to add fundamentally strong software stocks Oracle Corporation (ORCL), Open Text Corporation (OTEX), and Progress Software Corporation (PRGS) to your portfolio now.
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate IT environments, including applications, platforms, and infrastructure worldwide. The company operates through cloud services and license support, cloud license, and on-premises license, hardware, and services segments.
On November 3, 2022, ORCL announced the launch of Oracle Public Safety Services, a new technology platform for law enforcement and first responders. The platform has a unified hardware and software suite and is a significant addition to the company’s offerings.
In the fiscal first quarter that ended August 31, 2022, ORCL’s total revenue increased 17.6% year-over-year to $11.44 billion. The company’s non-GAAP operating income increased 3.3% year-over-year to $4.48 billion. Its non-GAAP EPS remained flat year-over-year at $1.03.
Analysts expect ORCL’s revenue for the quarter ended November 30, 2022, to increase 15.4% year-over-year to $11.95 billion. Its EPS for the quarter ending February 28, 2023, is expected to increase 9% from the year-ago period to $1.23. Over the past six months, the stock has gained 14% to close the last trading session at $83.35.
ORCL’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Stability and Sentiment. In the Software - Application industry, it is ranked #19 of 139 stocks. Click here to see the other ratings of ORCL for Growth, Value, Momentum, and Quality.
Open Text Corporation (OTEX)
OTEX designs, develops, markets, and sells information management software and solutions. It offers an integrated portfolio of Information Management solutions delivered at scale in the OpenText Cloud, enabling organizations to optimize their digital supply chains.
For the first quarter that ended September 30, 2022, OTEX’s total revenues increased 2.4% year-over-year to $852.04 million, while its gross profit rose 3.4% year-over-year to $593.69 million. The company’s non-GAAP net income and non-GAAP EPS stood at $206.82 million and $0.77, respectively, in the same period.
For the quarter ending December 31, 2022, OTEX’s revenue represents a marginal increase from the same period last year to $877 million. Its EPS for the quarter ending March 31, 2023, is expected to increase 11.7% year-over-year to $0.78. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has gained 3% to close the last trading session at $29.29.
OTEX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It has a B grade for Growth, Value, and Stability. In the same industry, it is ranked #10 out of 139 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see OTEX’s ratings for Momentum, Sentiment, and Quality here.
Progress Software Corporation (PRGS)
PRGS offers software products to develop, deploy and manage high-impact business applications. Its offerings include OpenEdge, Developer Tools, Sitefinity, Corticon, DataDirect Connect, MOVEit, Chef, WhatsUp Gold, Kemp Loadmaster, and Kemp Flowmon Network Visibility, which aids businesses in innovating and fueling momentum.
On September 22, PRGS announced the expansion of its collaboration with Microsoft Corp. (MSFT) to enable Microsoft Azure customers to accelerate cloud migration in India with PRGS’ Chef DevSecOps automation tools. This should help the companies bring together two powerful tools to deliver a ‘cloud-first’ infrastructure quickly and securely.
PRGS’ total revenue increased 3% year-over-year to $151.22 million for the third quarter that ended August 31, 2022. Its net cash flows from operating activities increased 12.6% year-over-year to $39.67 million. In the same period, the company’s non-GAAP net income and non-GAAP EPS stood at $44.09 million and $1, respectively. In addition, its adjusted free cash flow increased 12% year-over-year to $39.24 million.
Analysts expect PRGS’s EPS and revenue for the fourth quarter (ended November 30, 2022) to increase 18.3% and 13% year-over-year to $1.09 and $162.41 million, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 19.3% over the past nine months to close the last trading session at $53.92.
PRGS’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the Software - Application industry, it is ranked #4. To see the other ratings of PRGS for Growth, Momentum, Stability, and Sentiment, click here.
ORCL shares were trading at $79.86 per share on Monday afternoon, down $3.49 (-4.19%). Year-to-date, ORCL has declined -6.84%, versus a -15.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
3 Software Stocks to Add to Your Portfolio This Week StockNews.com
