4 Top Notch Software Stocks to Beat the Market in 2018

As technology continues its rapid invasion into every corner of human existence, the need for improved software has increased manifold. The last few years witnessed breakthroughs in cloud computing and artificial intelligence (AI), chip shrinking technology, self-driving vehicles, digital personal assistants, and Internet-of-Things, consequently setting the stage for strong growth in the software industry.

Massive Growth Opportunity

Notably, per the latest report by Gartner, worldwide spending on software is projected to be $354 billion in 2017, registering year-over-year increase of 8.5% (up from 5.3% in 2016). The research firm predicts that next year (2018) the industry will witness even higher growth of 9.4% to reach $387 billion.

This is much higher than the projected growth rate of 4.3% for entire technology spending, which is likely to touch $3.6 trillion in 2018.

Continued enterprise investment in big data and analytics along with ongoing adoption of Software-as-a-Service (SaaS) will aid the projections.

As the prospects of software look bright in 2018, we believe adding some of these stocks to your portfolio will help boost returns.

Picking the Right Software Stocks

We have selected four software stocks that are well-poised for impressive returns in 2018. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Apart from this, all the stocks listed below have delivered positive average earnings surprises in the last four quarters and has a market cap of more than $2 billion.

4 Picks

Nuance Communications, Inc. NUAN is the leading provider of speech and imaging solutions for businesses and consumers globally. The stock has a Zacks Rank #1 and a long-term expected EPS growth rate of 12%. Nuance outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 11.6%. (Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here.)

Nuance Communications, Inc. Price, Consensus and EPS Surprise

Nuance Communications, Inc. Price, Consensus and EPS Surprise | Nuance Communications, Inc. Quote

Microsoft Corporation’s MSFT offering includes software, hardware and online services.  Additionally, Microsoft offers support services in the form of consultation, training and certification of system integrators and developers. The stock has a long-term expected EPS growth rate of 12.7% and a Zacks Rank #2. The company outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 16.4%.

Microsoft Corporation Price, Consensus and EPS Surprise

Microsoft Corporation Price, Consensus and EPS Surprise | Microsoft Corporation Quote

Verint Systems Inc. VRNT is a provider of analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. The stock has a long-term expected EPS growth rate of 10% and a Zacks Rank #2. Verint outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 20.7%.

Verint Systems Inc. Price, Consensus and EPS Surprise

Verint Systems Inc. Price, Consensus and EPS Surprise | Verint Systems Inc. Quote

Paycom Software, Inc. (PAYC) is a provider of a cloud-based human capital management software solution delivered as Software-as-a-Service (SaaS). The stock carries a Zacks Rank #2 and has a long-term expected EPS growth rate of 28.4%. Paycom outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 36.1%.

Paycom Software, Inc. Price, Consensus and EPS Surprise

Paycom Software, Inc. Price, Consensus and EPS Surprise | Paycom Software, Inc. Quote

Bottom Line

Software companies will continue to transform our world with each passing year. So, if you don’t want to be left behind, make sure you’re investing in quality software stocks.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Paycom Software, Inc. (PAYC) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Nuance Communications, Inc. (NUAN) : Free Stock Analysis Report
 
Verint Systems Inc. (VRNT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research