It’s that time of year again, the time when all the top firms that we cover here at 24/7 Wall St. start to make their prognostications and stock picks for 2019. This not only gives investors a bit of a head start on year-end portfolio reshuffling, but it also gives them a look at what the overall macro thoughts for the coming year are at the big brokerages and banks.
The relentless selling in the markets that started in early October has shaken the faith of many investors, but it is important to remember that we have enjoyed an almost 10-year bull market run, with the S&P 500 running to 2,940 from an intraday low in March of 2009 of 666. This current backup should give investors a chance with some dry powder to reset and buy some great companies.
A new Jefferies research report acknowledges that while the pressure on the market should not be ignored, forward data for the software industry looks very positive. The report said this:
Secular forces remain very strong, and while there are real macro and valuation concerns, indications are that information technology spending trends will remain supportive in key markets, aided by increased regulation and increased US corporate discretionary capital, along with a setup for continued mergers and acquisitions momentum. Investors of all types are increasingly appreciating the highly recurring revenue and profit of Software, which should be supportive of valuations over time.
Six software companies are top picks for 2019 at Jefferies, and all are rated Buy.
Mimecast
This is a smaller and perhaps less-known company that Jefferies is very positive on. Mimecast Ltd. (NASDAQ: MIME) provides cloud security and risk management services for corporate information and email.
The company offers Mimecast Email Security services, including targeted threat protection that extends traditional gateway security to protect organizations against targeted attacks and audit and reporting, and it enables administrators and security specialists to monitor and report attempted attacks. Mimecast also offers URL Protect, which tackles threats from emails containing malicious links.
Last year the company introduced the latest capability of its Targeted Threat Protection service, Internal Email Protect, the first-to-market cloud-based security service providing threat capabilities for internally generated email. Internal Email Protect allows customers to detect and remediate security threats that originate from their users’ email accounts.
The Jefferies price target for the stock is $50, while the Wall Street consensus target is $45.44. The shares closed trading on Friday at $30.18.
Nice
Jefferies remains very positive on the shares of this company. NICE Systems Ltd. (NASDAQ: NICE) is a global enterprise software provider. Its segments include Customer Interactions Solutions, which provides data-driven insights that enable businesses to deliver personalized experience to customers, and Financial Crime and Compliance Solutions.
The company serves contact centers, back office operations and retail branches, covering various industries, including communications, banking, insurance, health care, business processes outsourcing, government, utilities, travel and entertainment.
Jefferies has a $132 price target, while the consensus target is $118.18. The shares closed at $105.00 on Friday.
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 receive a 1.67% dividend. Jefferies has set its price objective at $61. The consensus price target is $53, and the stock was trading at $44.00 as the week came to a close.
Salesforce.com
This top company has reported solid fiscal 2018 results as billings drastically improved, and this past quarter was no exception. 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.
Jefferies commented on the company’s earnings report:
Company reported fiscal third quarter last week and results exceeded expectations across the board. Billings growth of 27% exceeded consensus’ 19% forecast and implies new sub annual contract value grew 20% on an organic basis versus consensus’ implied 7% decline. Implied fiscal fourth quarter billing guidance came in considerably below Street expectations at 15% vs. 23%. It’s not unusual for the company to issue conservative guidance and our field checks indicate a robust deal pipeline for the US business.
The $189 Jefferies price target compares to a consensus price objective of $171.78 and the most recent share price of $122.91.
ServiceNow
This stock has had an outstanding year and remains a top pick. ServiceNow Inc. (NYSE: NOW) develops and sells a hosted, subscription-based suite of services designed to automate various IT department functions, such as help desk, operations management and change/release management.
The company also sells a number of applications that automate various self-service related applications outside of the IT department, such as HR onboarding, facilities requests and governance, risk and compliance.
The Jefferies price objective is $234. The consensus price target is $210.76, and the stock closed on Friday at $162.00.
Zendesk
This is another smaller cap company and could make an interesting play for more aggressive accounts. Zendesk Inc. (NYSE: ZEN) is a software development company that provides software as a service customer service platform for organizations. It provides single customer service interface to organizations to manage all their one-on-one customer interactions, track and predict common questions and provide a seamless path to answers.
The company’s platform also enables organizations to gather customer data and engage with customers based on the insights the data provides, and it offers tools for organizations to understand their customers and track the efficiency and effectiveness of their customer service.
Zendesk also provides live chat software that enables the organizations to communicate in real-time with their customers through online chat. Its analytics software enables organizations to analyze and visualize data from a diverse set of applications.
Jefferies has a price objective of $82. The consensus estimate is $70.71, and the shares were last seen trading at $51.25 apiece.
Needless to say, the markets probably still have more downside to go, so buying any big positions now is not encouraged. However, the products and services of these companies will remain in demand, so slowly scale-buying shares over the next three to six months could be a great plan.
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