3 A-Rated Software Stocks to Snatch Up in January
The rapid growth of tech-based solutions required to automate various processes in end-user industries has fueled the demand for business software and services. Against this backdrop, we think it could...
The rapid growth of tech-based solutions required to automate various processes in end-user industries has fueled the demand for business software and services. Against this backdrop, we think it could be wise to scoop up quality software stocks SS&C Technologies (SSNC), Open Text (OTEX), and National Instruments (NATI). These names are also rated ‘A’ by our POWR Ratings system. So, let’s discuss.
Businesses worldwide are transforming rapidly with a focus on digitalization to cater to their changing needs, fueling the demand for business software and services. The COVID-19 pandemic has further pushed the need to adopt smart, cloud-based software solutions and services to facilitate the hybrid work and recreation culture.
Advanced-technology integrated software solutions are being used extensively across most end-user industries, such as healthcare, manufacturing, retail, BFSI, and transportation. Principal business processes are being automated to ensure the scalability of operations. Software solutions also enable easy access to data and facilitate essential decision making through data analytics. According to Statista, revenue in the software market is expected to reach $824.85 billion by 2026, growing at a 7.45 CAGR.
Given this backdrop, we think it could be wise to add fundamentally solid software stocks SS&C Technologies Holdings, Inc. (SSNC), Open Text Corporation (OTEX), and National Instruments Corporation (NATI) to one’s portfolio. These stocks also have an overall ‘A’ rating in our proprietary POWR Ratings system.
SS&C Technologies Holdings, Inc. (SSNC)
SSNC in Windsor, Conn., provides software and software-enabled services for the financial and healthcare industries. The company owns and operates a range of technology stacks across securities accounting, front-to-back-office operations, performance and risk analytics, regulatory reporting, and healthcare information processes.
On December 9, 2021, SSNC announced that it has entered an agreement to acquire U.K.-based B2B investment platform Hubwise Holdings Ltd., which serves advisers, discretionary wealth managers, and self-directed digital D2C propositions. The move is expected to help expand its reach in the U.K.-advised retail market.
SSNC’s revenue for its fiscal third quarter, ended September 30, 2021, increased 9.6% year-over-year to $1.26 billion. The company’s net income came in at $184.7 million, up 15.8% year-over-year. Also, its adjusted EBITDA increased 15.7% year-over-year to $539.80 million.
Analysts expect SSNC’s EPS for fiscal 2021 to increase 15.6% year-over-year to $4.97. Its revenue for the quarter ending March 31, 2022, is expected to increase 8.6% year-over-year to $1.29 billion. Also, the stock has surpassed the Street’s EPS estimates in each trailing four quarters. And over the past nine months, the stock has gained 21.7% in price to close yesterday’s trading session at $82.99.
SSNC’s POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Open Text Corporation (OTEX)
Headquartered in Waterloo, Canada, OTEX is a world leader in Information Management. It helps companies securely capture, govern and exchange information globally. OTEX solves digital business challenges for customers, ranging from small- and mid-sized businesses to the world's most prominent organizations with complex structures.
On November 8, OTEX announced that it had agreed to acquire Zix Corporation (ZIXI). The CEO and CTO of OTEX, Mark J. Barrenechea, said, “Zix will deepen our technology and go-to-market relationship with Microsoft. Further, Zix will bring approximately 5,600 MSPs to OpenText and create significant cross-sell opportunities in the OpenText and Zix clouds. Today’s announcement demonstrates our commitment to winning in both the enterprise and SMB markets.”
OTEX’s revenues increased 3.5% year-over-year to $832.30 million for its fiscal first quarter, ended September 30, 2021. The company’s ARR increased 3.2% year-over-year to $691.80 million. Also, its net income increased 27.6% from the same period last year to $131.90 million.
For fiscal 2023, analysts expect OTEX’s EPS to increase 4.1% year-over-year to $4.56. Its revenue for fiscal 2022 is expected to increase 4.4% year-over-year to $4.41 billion. The stock has gained 5.8% in price year-to-date to close yesterday’s trading session at $48.12.
OTEX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equated to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Stability, Sentiment, and Quality.
National Instruments Corporation (NATI)
Austin, Tex.-based NATI designs, manufactures, and sells systems to engineers and scientists. The company offers modular hardware and open, flexible software systems to support organizations' evolving test and measurement needs. It provides products, technology, and services, including system design software, programming tools, application software, systems and data management, and modular hardware.
On October 28, 2021, NATI announced that it had acquired NH Research (NHR), a leader in high-power test and measurement applications. It also announced that it had agreed to acquire the EV systems business of Germany-based Heinzinger GmbH. These acquisitions will likely help bolster NATI’s electrification (EV) portfolio, battery, and sustainable energy capabilities.
NATI’s revenue for its fiscal third quarter, ended September 30, 2021, increased 19% year-over-year to $367 million. The company’s non-GAAP gross profit increased 20.3% year-over-year to $275.77 million. Its non-GAAP net profit came in at $55.50 million, up 85.3% year-over-year. And its non-GAAP EPS increased 82.6% year-over-year to $0.42.
Analysts expect NATI’s EPS for the quarter ending March 31, 2022, to increase 666.7% year-over-year to $0.23. Its revenue for fiscal 2022 is expected to increase 16.5% year-over-year to $1.70 billion. Over the past three months, the stock has gained 8.8% in price to close yesterday’s trading session at $43.94.
NATI’s POWR Ratings reflect solid prospects. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Sentiment and Quality. It is ranked #5 in the Software – Application industry. Click here to see the additional ratings of NATI for Value, Momentum, and Stability.
SSNC shares were unchanged in premarket trading Wednesday. Year-to-date, SSNC has gained 15.13%, versus a 29.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.