Merrill Lynch Out With Six Top Software Stocks To Buy For Rest Of 2017

By Lee Jackson Updated Jan 12, 9:54AM EST · Published Jul 21, 9:58AM EDT

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Merrill Lynch Out With Six Top Software Stocks To Buy For Rest Of 2017 — © Thinkstock

Despite the huge run in technology, there is a good argument for staying long in the sector, especially with the top software stocks. The continued growth of cloud computing and storage, combined with the growing use and dependence on big data for everything from logistics to quantitative computing and application, keeps the sector red hot.

In a comprehensive new research report from Kash Rangan, the software analysts at Merrill Lynch are out with the firm’s top software picks for the rest of 2017. While best suited for aggressive growth accounts, all of the following companies are big players in their respective silos, and offer solid long-term potential for patient investors.

Salesforce.com

The company reported solid first-quarter results as billings drastically improved and is on the Merrill Lynch US1 list. Salesforce.com, Inc. (NYSE: CRM) provides enterprise cloud-computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. It offers enterprise cloud-computing applications and platform services. Among these are 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 that enables companies to deliver personalized customer service and support, as well as connects their service agents with customers on various devices; and Marketing Cloud, which enables companies to plan, personalize, and optimize customer interactions.

Salesforce.com has recently been upgraded at several top Wall Street firms and looks to be breaking out of a triple top formation. The Merrill Lynch price target is $114, and the Wall Street consensus is posted at $97.89. The shares closed Thursday at $90.54.

HubSpot

This stock has had a solid run since selling off in early June. HubSpot, Inc. (NYSE: HUBS) is a cloud-based provider of inbound marketing tools such as website content management, blogging tools, email campaign, search engine optimization, social media monitoring and management, CRM and others for small businesses and mid-sized companies. HubSpot’s tools provide a single console for marketing professionals to generate new customer leads, convert leads to customers, and customers to repeat customers.

The analysts stay positive on the company and noted this in a recent report.

“We are raising our price objective into the second-quarter earnings, given expectations for upside to our subscription revenue estimate. Expect subscriber growth of 38% to 40% versus our 33% is likely given partner calls indicating sustained customer adds strength. Partner feedback suggests steady progress cross selling sales.”

The Merrill Lynch price target goes to $86 from $80, and the consensus is set at $76.42. The stock closed Thursday at $73.95.

Oracle

This top software stock finally broke out after years of trading sideways and looks poised to go even higher. Oracle Corporation (NYSE: ORCL) develops, manufactures, markets, sells, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide.

The company licenses its Oracle Database software to customers, which is designed to enable reliable and secure storage, retrieval, and manipulation of various forms of data; and Oracle Fusion Middleware software to build, deploy, secure, access, and integrate business applications, as well as automate their business processes.

The company finally rewarded investors with a breakout quarter when it released last quarter’s earnings. Oracle reported higher-than-expected numbers and metrics on almost all fronts. Merrill Lynch analysts noted that the results validated their thesis of an inflection point on software revenue growth and operating income going forward.

Shareholders are paid a 1.5% dividend. The Merrill Lynch price target is $62, and the consensus is at $55.40. The stock closed Thursday at $51.13.

Splunk

This stock remains one of the top software buys on Wall Street. 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 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.

The company reported solid first-quarter results as billings grew 30% year over year. Some on Wall Street were disappointed with the in-line guidance for the second quarter, but analysts remain very positive on the big data story.

The Merrill Lynch price target is posted at a massive $90, and the consensus price objective is $72.36. The shares closed Thursday at $61.56.

RingCentral

This is one of the smaller-cap names that the Merrill Lynch team is positive on for the last half of 2017. RingCentral Inc. (NYSE: RNG) offers a cloud-based solution for business communications that replaces legacy and expensive on-premise communications systems. It is delivered as an application that follows the user regardless of device (office phone, smartphone, desktop, tablet). Features include voice, text, fax, audio conferencing, and integration with document and customer relationship management systems.

The Merrill Lynch analysts have noted that over the last six to 12 months several factors have come together to propel the company’s business model. RingCentral is seeing enterprise traction, channel is driving enterprise deals, and the Avaya install base is a big opportunity.

The Merrill Lynch price target is set at $45, and the consensus for the stock is posted at $39.04 as well. Shares closed Thursday at $34.80.

Tableau Software

This was a red-hot stock that has also been a rumored takeover target for some time. Tableau Software, Inc. (NASDAQ: DATA) provides business analytics software products in the United States and other countries. The company offers Tableau Desktop, a self-service analytics environment that empowers people to access and analyze data independently; and Tableau Server and and Tableau Public, free cloud-based platforms for analyzing and sharing public data.

The Merrill Lynch analysts are moving the stock back into the top picks list and noted this in the report.

“Recent partner feedback suggests strong continued enterprise traction. Look for upside to our 5% second quarter license equivalent bookings estimate. At 24 times 2018 free cash flow, and underappreciated upside potential to 38% free-cash-flow growth from sales productivity.”

The Merrill Lynch price target is posted at $76, and the consensus is at $63.78. The stock closed trading on Thursday at $64.43.

Merrill Lynch is not alone in its admiration for these top companies, as most on Wall Street are in agreement. Big data, analytics, and cloud computing are the big stories going forward and these are great ways to play them.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.