The idea of software stocks to buy on the dip seems incredibly treacherous given the volatility. One of the core catalysts of the latest red wave centers on the Federal Reserve. First, the Fed has an undue influence on world affairs because of the pure hegemony of American economic might. Second, the central bank is committed to a hawkish monetary policy.
While I don’t want to turn this discussion into an economics lecture, the reality is that as borrowing costs rise, companies will unsurprisingly borrow less. Therefore, corporations will produce less earnings than analysts previously anticipated. Therefore, many securities, particularly those tethered to growth-centric names. must undergo a “re-risking” process if you will.
In other words, Wall Street must reassess the risk profile of equities based on the Fed’s monetary paradigm shift. Unfortunately, this re-risking causes pain, lots of it, as you can clearly see. At the same time, astute contrarians can use this macabre adjustment phase to secure software stocks to buy.
Here are some quality names to consider.
|BAH||Booz Allen Hamilton||$95.88|
CrowdStrike (NASDAQ:CRWD) is a leading cybersecurity firm. Specifically, it provides cloud workload and endpoint security, threat intelligence, and cyberattack response services. Fundamentally, CrowdStrike should gain from pure relevancies. In 2021, the average number of cyberattacks and data breaches increased 15.1% from the previous year.
Unfortunately, Wall Street doesn’t see it that way, at least not yet. On a year-to-date basis, CRWD slipped over 26% through the Oct. 14 session. However, this volatility appears irrational based on the company’s significantly undervalued profile. While the company presently lacks robust substance in the earnings department, it makes up for it in growth. For instance, its three-year revenue growth rate stands at 63.6%, ranked better than 95% of the competition.
Also, keep in mind that CrowdStrike enjoys financial resilience. I’m not going to tell you that it has the greatest balance sheet in the world. However, with an Altman Z-Score of 7.72, which is a lofty figure, the cybersecurity expert enjoys less probability of bankruptcy than its peers.
Booz Allen Hamilton (BAH)
Booz Allen Hamilton (NYSE:BAH) is an American management and information technology consulting firm. The company’s stated core business is to provide consulting, analysis and engineering services to public and private sector organizations and nonprofits. Fundamentally, Booz Allen Hamilton is a vital cog in several government agencies.
Not surprisingly given its relevance, BAH ranks among the rare companies to be up this year, gaining 7%. However, BAH did have a comparatively rough week last week, declining a little more than 3%. Therefore, it technically qualifies as one of the software stocks to buy on the dip.
Financially, the company enjoys a mixture of strong growth, profitability and quality. For instance, Booz Allen’s three-year revenue growth rate stands at 9.8%, rated better than nearly 74% of its peers. Regarding net margin, this metric pings at nearly 6%, superior to 60% of the underlying industry.
Finally, the company features a return on equity of 48%, ranking better than 95% of its rivals. Additionally, such a high stat indicates the tremendous quality of its business.
A powerhouse in the consumer electronics and business software space, Microsoft (NASDAQ:MSFT) represents a must-have, fundamentally. From an academic and professional perspective, the company’s Software as a Service (specifically its software suite of business applications) presents an irreplaceable platform. For instance, if you consider the desktop operating system market share, Microsoft Windows utterly dominates everyone else.
However, as usual on this list of software stocks to buy on the dip, Wall Street doesn’t see it that way. Since the start of the year, MSFT fell nearly 32%. Even more recently, the security can’t seem to catch a break, losing 7% in the trailing month. However, investors on the sidelines may be missing a great opportunity. Per Gurufocus.com, MSFT rates as modestly undervalued.
Further, the company enjoys excellent financial metrics across the board. First, the company features a stable balance sheet, with a high Altman Z-Score of 7. In terms of key three-year growth statistics, they’re all in double-digit territory and above sector average. Finally, MSFT represents a high-quality business among software stocks to buy, enjoying a return on equity of 46%, ranking better than 97% of its peers.
Unless you’re an employee anticipating a nice refund, not many others enjoy tax season. The paperwork can be complicated and onerous. In addition, some entrepreneurs may owe money to Uncle Sam. However, business and accounting software giant Intuit (NASDAQ:INTU) helps make this time of the year a little less taxing.
While I don’t want to say that Wall Street misses the point (it sounds terribly arrogant) with INTU, it really does seem like it’s missing the point. I simply look to the gig economy. You can look at various projections. However, the consensus is that the gig economy represents a burgeoning market.
Because tax implications for gig workers, or independent contractors feature greater complexities than employees (all other things being equal), INTU has a long upside pathway. That’s the fundamental argument. Financially, the company features a solid balance sheet, strong growth (based on book expansion) and excellent profitability metrics. Intuit’s return on equity stands at 15%, better than nearly 78% of the industry.
While Lemonade (NYSE:LMND) may be an insurance app and therefore perhaps not everyone’s idea of software stocks to buy on the dip, apps do represent a type of software. Therefore, I’m going to stick it on this list.
Fundamentally, Lemonade brings many relevancies to the table. Let’s face it, the insurance business is boring as heck. However, Lemonade integrated much-needed tech into the staid industry, making the process easier for younger users – its core base. Using the platform, people can acquire renters, homeowners and car insurance. As well, Lemonade offers pet insurance. Since millennials love pets, this particular offering represents smart business.
However, Wall Street sadly is pessimistic on the company. Since the beginning of this year, LMND slipped 52%. To be fair, Lemonade isn’t exactly bringing the heat in terms of profitability. But it is driving home the growth angle. For instance, the company’s three-year revenue growth rate currently flies at 60%. That above 96% of the competition.
If you can handle some volatility, LMND might belong on your list of software stocks to buy on the dip.
Trade Desk (TTD)
In any other circumstance, red ink for Trade Desk (NASDAQ:TTD) would probably automatically qualify for software stocks to buy on the dip. Unfortunately, present circumstances demand greater vigilance. Trade Desk specializes in real-time programmatic marketing automation technologies, products, and services, designed to personalize digital content delivery to users.
Sounds neat. But here’s the problem. The digital advertising space really stinks. That’s not necessarily my assessment but one from Mark Zuckerberg. With global recession fears mounting, companies understandably feature a gun shy profile about fund outlays. Therefore, TTD slipped nearly 44% since the beginning of this year.
Could this be a contrarian opportunity, though? Gurufocus.com labels Trade Desk as significantly undervalued based on its proprietary calculations. From my angle, I see excellent growth stats, such as a blistering high 68% three-year free cash flow (FCF) growth rate.
On the balance sheet, its Altman Z-Score ranks as a lofty 9.25, indicating great stability. TTD is worthwhile if fundamentally undervalued software stocks to buy is your thing.
Samsara (NYSE:IOT) develops a connected operations platform for tracking fleets of vehicles and other equipment. While the immediate recession cloud presents a dour environment for innovative software stocks to buy, over time, Samsara should garner substantial relevance.
For now, IOT desperately attempts to tread water amid a hurricane. Shares slipped 59% for the year and nearer-term price action don’t present much encouragement. For instance, in the trailing month, IOT stock fell slightly over 14%. Still, astute investors will likely point to its strong growth and stable balance sheet.
To be fair, IOT is a young investment, having made its public debut in December of last year. Therefore, its profitability metrics are terrible if I’m being perfectly honest. However, the company’s Altman Z-Score of 5 points indicates a business safe from immediate bankruptcy risk. Combined with double-digit growth trends, Samsara offers an enticing package for discount lovers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.