Technology

5 Software Stocks to Buy as Huge Government Spending Comes in September

Lee Jackson

Published: August 14, 2018 8:05 am

Last Updated: January 11, 2020 7:26 pm

When you are a purchaser in departments and agencies of the vast U.S. government infrastructure, you are always pressed with the budget edict of “Use it, or lose it.” In other words, spend all your yearly allocated budget or lose what’s left. None of it rolls forward or is credited. With that in mind, a tidal wave of government spending is coming in September, and some top software stocks look to benefit.

A new Stifel research report notes that a huge pile of funds are there for the spending in September, according to Nextgov.com, a website that tracks and focuses on federal government spending.

The report noted this when discussing an article from the website:

To put this in perspective, the article indicates that these agencies now have $140 billion more to spend than they did before President Trump signed the omnibus spending bill in late March 2018. Additionally, many of these same agencies were fairly conservative in their spending during the first half of fiscal year 2018 given the lack of a budget at that time. We note that through the first 9 months of the fiscal year, civilian agency spend is down about $3 billion year-over-year while defense spend is running about $20 billion beyond last year’s level through the first half of the fiscal year. While this expected dramatic ramp in spending will impact all manner of goods and services, we believe that software vendors are especially well positioned to benefit from ongoing Federal government application and infrastructure modernization efforts, both on-premise and in the cloud, as well as cyber security efforts.

We picked five companies that look to benefit the most. All are good stocks to own in aggressive growth accounts.

Citrix Systems

This company has come into the spotlight as a potential takeover candidate, and it gets 10% to 15% of revenue from government spending. Citrix Systems Inc. (NASDAQ: CTXS) is leading the transition to software-defining the workplace, uniting virtualization, mobility management, networking and SaaS solutions to enable new ways for businesses and people to work better.

Citrix solutions power business mobility through secure, mobile workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. Strategic mergers and acquisitions and internal development have expanded Citrix’s addressable markets beyond access to legacy Windows applications to include desktop and server virtualization, team collaboration and application networking.

The Wall Street consensus price target is $116.31, and the shares closed trading on Monday at $110.97.

Microsoft

This top old-school technology stock has posted all-time highs this year and has a massive $132.7 billion sitting on the balance sheet. Microsoft Inc. (NASDAQ: MSFT) continues to find an increasing amount of support from portfolio managers, who have added the software giant to their holdings at an increasingly faster pace all of this year and last.

Many Wall Street analysts feel that Microsoft has become a clear number two in the public or hyper-scale cloud infrastructure market with Azure, which is its cloud computing platform offering. Some have flagged Azure as a solid rival to Amazon’s AWS service, while others maintain that Microsoft is discounting Azure for large enterprises, such that Azure may be cheaper than AWS for larger users. The cloud was big in the recent earnings report which was outstanding.

Microsoft also is expected to be a big winner in the new Department of Defense cloud project. In fact, Microsoft and its dedicated Azure Government segment appear to be the main challenger to Amazon’s AWS service, with industry checks barely mentioning IBM and Google, and countering that Oracle has little traction as a provider of modern cloud infrastructure services to the U.S. federal government.

Microsoft shareholders receive a 1.54% dividend. The posted consensus price objective is $121.70. The shares closed Monday at $108.21.

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Oracle

This top software stock has had a very difficult year but 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.

Shareholders are paid a 1.45% dividend. The $54.28 consensus price target compares with Monday’s close at $48.01.

Red Hat

This is a solid pick for aggressive accounts. Red Hat Inc. (NYSE: RHT) is the world’s leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training and consulting services.

In 2015 the company formed a partnership with once bitter rival Microsoft that would bring more flexibility to hybrid cloud enterprise environments. Specifically, the partnership allows cloud products running under the Linux operating system to integrate with Microsoft’s cloud computing platform Azure, a huge move after years of competition.

In May the companies expanded their alliance to empower enterprise developers to run container-based applications across Microsoft Azure and on-premises. With this collaboration, the companies will introduce the first jointly managed OpenShift offering in the public cloud, combining the power of Red Hat OpenShift, the industry’s most comprehensive enterprise Kubernetes platform and Azure, Microsoft’s public cloud.

The consensus price target was last seen at $164.88. The shares closed at $143.40 on Monday.

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Salesforce.com

This top company has reported solid fiscal 2018 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 consensus price objective for the stock is $150.40, and the shares closed trading on Monday at $144.45.

These five stocks should see some big government spending coming their way next month, which could prove a timely addition to third-quarter results, which will be posted in October.