As I’ve mentioned before, 2021 looks to be the year of the meme stock. These stocks have seen their shares soar this year based on trader sentiment in Reddit’s r/wallstreetbets subreddit. For the most part, corporate performance has not played a role in their gains. Instead, it’s all about social media attention.
BlackBerry (BB) has been a Reddit favorite this year. The stock spiked 281% from January 4th to January 27th and then imploded shortly thereafter. Recently, the stock trended up again as meme stocks have made a comeback over the past month. BB gained another 90% this month, though the stock has since returned some of those gains. From a fundamental standpoint, I don’t believe BB is a good stock to own right now.
My opinion is backed up by our quantitative POWR Ratings system that has assigned BB an overall grade of D, translating into a Sell rating. As much as I miss my old Blackberry phones, the stock just isn’t a great buy. However, there are software stocks that are definitely worth considering. VMware Inc. (VMW), PTC Inc. (PTC), and Check Point Software Technologies (CHKP) are all rated a Buy and have multiple growth drivers, setting them up for success this year, which is why I am highlighting them below.
VMware Inc. (VMW)
VMW, a majority-owned subsidiary of Dell (DELL), is an industry leader in virtual machines for data center servers and computer desktops. The software provider operates in the three segments of licenses, maintenance, and professional services. Customers include enterprises utilizing data centers, end-user computing, cloud providers, and software-defined networking.
The company is poised to benefit from the increasing adoption of cloud-based solutions. By enabling software support on the cloud, VMW benefits from supporting public cloud platforms such Amazon (AMZN) Web Services (AWS), Microsoft’s (MSFT) Azure, and Google (GOOGL) Cloud. The company has also been diversifying its product portfolio to include other IT infrastructure.
For instance, offerings in SDDC, hybrid cloud, and EUC have helped the company gain market share. Plus, the pandemic has accelerated the shift towards VMW’s subscription & SaaS offerings. The planned spin-off by DELL is also a positive as it should open up significant opportunities for the company to seek new partnerships.
VMW has an overall grade of B, which translates into a Buy rating in the POWR Ratings service. The company has a Value Grade of B due to its attractive valuation. For instance, its price-to-sales ratio of 5.5 is well below the industry average. VMW also has a Quality Grade of A, which is driven by the company’s rock-solid balance sheet. The company had $5.7 billion in cash as of the most recent quarter compared with no short-term debt.
We also provide Growth, Momentum, Stability, and Sentiment grades for VMW, which you can find here. VMW is ranked #7 in the Software – Business industry. For other top stocks in this industry, click here.
PTC Inc. (PTC)
PTC offers high-end computer-assisted design and product lifecycle management software and Internet of Things and AR industrial solutions. These offerings aid manufacturing companies in designing, operating, and managing products. Creo, its company’s flagship 3D CAD product, offers design engineers with design flexibility, assembly design, surfacing, and virtual prototyping design capabilities.
Windchill software, PTC’s primary product lifecycle management product, offers a unified repository for comprehensive product information. It also includes AR capabilities to aid customers in developing a digital product definition and publishing the illustration of it in AR. An increase in spending by companies on emerging industries such as the Internet of Things (IoT) and augmented and virtual reality presents significant growth potential for the company.
Increased adoption of computer-based design in the automotive industry should also aid growth. Plus, strong demand for precision in design and the digitalization of construction should drive demand for 3D-CAD offerings in the automotive, aerospace, manufacturing, healthcare, and defense spaces. PTC’s expanding product portfolio is also expected to help the company gain market share.
PTC has an overall grade of B and a Buy rating in our POWR Ratings system. The company has a Sentiment Grade of B which means the analyst community likes it. Twelve out of fifteen analysts currently have a Buy or Strong Buy rating on the stock. PTC also has a Quality Grade of B as it has a strong balance sheet. The company has a current ratio of over 1, meaning it has more than enough liquidity to handle short-term obligations.
Check Point Software Technologies (CHKP)
CHKP is a cybersecurity vendor. The company offers solutions for network, endpoint, cloud, and mobile security in addition to security management. These solutions are typically attached to either an operating system, a computer device, a server or a virtual desktop. CHKP sells to enterprises, businesses, and consumers.
The company is looking to increase revenue by selling subscription-based solutions and services. This business model generates stable recurring revenues with a high gross margin. As companies continue to face continued sophisticated cyber threats, CHKP should be able to grow its market share due to the high demand for its products.
CHKP is also strengthening its cloud offerings and winning new customer accounts. It currently serves close to every Fortune 500 company. This huge customer base is ripe for upselling, which should provide additional revenue. Plus, the company should benefit from targeted the relatively under-penetrated market of small- and medium-sized businesses.
The company has an overall grade of B, translating into a Buy rating in our POWR Ratings system. CHKP has a Value Grade of B, which isn’t surprising with a forward P/E of 17.70 and price-to-book ratio of 4.8, both well below the industry averages. The company also has a Quality Grade of A which doesn’t surprise me either. CHP has a net profit margin of 40.8% and a gross margin of 88.9%. Plus, its cash position has grown sequentially and year over year.
To access all of CHKP’s grades (Growth, Momentum, Stability, and Sentiment), click here. CHKP is ranked #5 in the Software – Security industry. For other top stocks in this industry, make sure to click here.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
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BB shares were unchanged in after-hours trading Wednesday. Year-to-date, BB has gained 94.27%, versus a 13.27% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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