Regardless of how you feel about the current political climate in the United States, one thing seems very clear: business optimism is as high as it has been in years. And with a very surprising third-quarter gross domestic product reading of 3%, despite some of the worst storms in a generation, the trend seems to be going higher. One of the positives from optimism in the corporate world is renewed and, most importantly, increased levels of spending, and that seems to be the case when it comes to information technology (IT) spending in the fourth quarter.
In a new research report, Oppenheimer has tallied the results from its fifth annual fourth quarter IT spending survey, and they look very positive. The analysts note that the report provides an updated assessment of demand conditions and can be a sentiment indicator of directional changes in IT spending through year’s end. The report said this:
Positively, the trend lines show an inflection, and reveal strengthening IT spending patterns versus prior years. The survey data points to a healthy operating environment for new software sales and should translate into good fourth quarter technology earnings results. Bottom Line: The trend lines and qualitative feedback suggest a more optimistic mindset from IT buyers this fourth versus prior years, which is a positive data point for upcoming quarterly results for large-cap software vendors, and best-of-breed SaaS vendors with technology visions that are aligned with customer demand, are differentiated, and have difficult-to-replicate products and services.
Three companies could be big winners, and their shares look like good buys now.
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Salesforce.com
This top company reported solid fiscal 2018 second-quarter results as billings drastically improved. 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, including Sales Cloud that 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.
The company’s guidance for revenues of $20 billion to $22 billion (17% to 21% compounded annual growth rate) in fiscal 2022 is consistent with top analysts long-term framework and has upside. Many see battle lines emerging given the Salesforce-Google partnership versus Adobe and Microsoft, as digitization becomes a pronounced theme.
The Wall Street consensus price objective for the stock is $114.22. The shares closed trading on Wednesday at $105.43 apiece.
Oracle
This top software stock was hit hard in late September and offers a very good entry point. Oracle Corp. (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. Its Oracle Fusion Middleware software aims to build, deploy, secure, access and integrate business applications, as well as automate their business processes.
Oracle reported a stronger-than-expected August quarter, as fiscal second-quarter earnings and revenue guidance was in-line with Wall Street. The company’s Cloud revenues guidance at 43% year over year was lower than some estimates, causing some to overestimate SaaS organic growth. Oracle looks poised to deliver mid-single-digit software revenue growth and double-digit earnings per share growth.
Shareholders are paid a 1.57% dividend. The posted consensus price target is $56.40, and the stock closed Wednesday at $48.82 a share.
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Workday
This top company also looks to benefit from increased IT spending, and it has had a very solid year for investors. Workday Inc. (NYSE: WDAY) is a leading provider of enterprise cloud applications for finance and human resources. Workday delivers financial management, human capital management and analytics applications designed for the world’s largest companies, educational institutions and government agencies.
Earlier in the fall, Workday hosted a very upbeat and positive analysts day, and many feel that the company is transforming into a platform story, customer growth is reaching an inflection point, and the module attach rate is very strong. Long-term operating margins are being increased as many analysts feel that big picture of the company’s operating leverage is not fully reflected in the stock price.
Note that the consensus price target for the shares is the same as the $106.61 most recent closing price.
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These three top companies look to benefit from increased IT spending in the fourth quarter. Given the pricey market, investors may want to buy partial positions and see if a sell-off in the market doesn’t offer some better entry points.
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