With the first-quarter earnings season off and running this week, many across Wall Street are expecting some incredible results, as well as forward guidance that points to continuing strength throughout the rest of 2021. The one rub for many investors is the stock market is as expensive as it has been in some time, with the S&P 500 price-to-earnings ratio at 34.24, up from 31.24 last quarter and from 22.40 a year ago.
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With a big melt-up rally last week taking both the Dow Jones industrials and the S&P 500 to all-time highs, caution is warranted, especially in sectors that have been on fire, like software. However, there could be some big-time opportunity as some software names are retracing and are at or below their three-year historical forward multiples, according to Jefferies analysts. They point out four specific companies that are rated Buy at the firm that look like very solid ideas now. It is important to remember, however, that no single analyst report should be used as a sole basis for any buying or selling decision.

Anaplan

This off-the-radar stock could offer aggressive investors some big upside from current trading levels. Anaplan Inc. (NYSE: PLAN) provides a cloud-based connected planning platform to connect organizations and people. Its platform in-memory data storage and calculation capabilities deliver calculations of data in real time and provide a single source of information for planning and ensuring the consistency, quality and integrity of the data that is used in various areas of an organization, such as finance, sales, supply chain, marketing, human resources and operations.

The company delivers its application over the internet as a subscription service using a software-as-a-service model, as well as offers professional services related to implementing and supporting its application. It has operations in the Americas, Europe, the Middle East, Africa and the Asia Pacific.

Jefferies recently raised the price target on the shares to $100 from $85. The much lower Wall Street consensus target is $83.17, and Monday’s last trade for Anaplan stock was at $60.45, which was up over 2% on the day.

Datadog

Investors may not be familiar with this name either, but it also holds tremendous upside potential. Datadog Inc. (NASDAQ: DDOG) engages in the development of monitoring and analytics platforms for developers, information technology operations teams and business users. The company’s platform integrates and automates infrastructure monitoring, application performance monitoring and log management to provide real-time observability of its customers’ entire technology stack.

Datadog recently announced the extension of Network Performance Monitoring (NPM) to Windows. Datadog NPM now monitors the performance of network communications between applications running on Windows Server and Linux, providing seamless network visibility across cloud environments, on-premises data centers and operating systems.

Jefferies has a huge $140 price target, while the consensus target is $122.88. Datadog stock rose almost 2% on Monday to close at $90.46 a share.

This company blew away Wall Street last year with a gigantic $27.7 billion purchase of Slack Technologies. Salesforce.com Inc. (NYSE: CRM) provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide.
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Salesforce’s enterprise cloud computing applications and platform services include Sales Cloud, which enables companies to store data, monitor leads and progress, forecast opportunities, gain insights through relationship intelligence and collaborate around sales on desktop and mobile devices.

The company also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as connect their service agents with customers on various devices, and Marketing Cloud, which enables companies to plan, personalize and optimize customer interactions.

Top analysts feel that Salesforce remains poised to be one of the most strategic application software companies in the $1 trillion total addressable market cloud industry, with a broad and expanding platform that spans sales, service, e-commerce, marketing, business intelligence/analytics, artificial intelligence, custom applications, integration and collaboration. Many also view Salesforce as well positioned to capitalize on accelerated digital transformation spending.

The $320 Jefferies price target is well above the $274.53 consensus target. Salesforce.com stock closed at $228.76 on Monday.

Splunk

This is a top Wall Street pick in the industry. Splunk Inc. (NASDAQ: SPLK) provides a software platform for collecting, storing, indexing, searching and analyzing machine-generated data, such as log files and configuration files, which are prevalent in every type of IT system, device and application.

Splunk technology is potentially applicable and disruptive in several market segments, including IT operations, security and compliance, and business intelligence. These market segments are collectively worth $28 billion today.

Wall Street analysts agree that the company offers the de facto standard for security information and event management. It also offers orchestration solutions for security operations, a fast emerging category of products.

Jefferies has set a $265 price target on Splunk stock. The consensus target is $193.21, and shares ended Monday at $144.71.

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Shares of these four top software companies are significantly cheaper now than in years past. With the market very pricey, yet still very strong, it makes sense for aggressive investors to put some chips down on these stocks that have huge upside to the Jefferies price targets. It is also important to note that three of the four stocks were up on Monday, which was an overall down day for technology.

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