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  1. Home
  2. / Investing
  3. / Technology

Two Solid Software Stocks to Pick Up Now

Verint and Check Point offer products that probably won't be affected by a slowdown in corporate tech spending.
By BRET JENSEN
Aug 02, 2012 | 02:30 PM EDT
Stocks quotes in this article: VRNT, CHKP

I have noticed recently that some business software stocks have been hit significantly on concerns around slowing IT spending. Although I believe those concerns are legitimate, the stocks of some companies in the sector seem to be offering solid entry points for long-term investors. I am also more sanguine about the outlook for IT spending than I am for consumer spending over the next six months.

Companies such as Coach (COH), Abercrombie & Fitch (ANF) and even Weight Watchers International (WTW) have all blown up this week on poor results and have cited slowdowns in consumer spending as one of the primary causes for their disappointing earnings and guidance. Given that corporate balance sheets are in much better shape than that of consumers, companies that sell into that sector are in a better position than those counting on consumer spending. I particularly like companies that have products for fast-growing niches like analytics or security that probably won't be affected as much by any slowdown in overall corporate tech spending. Here are two business software makers that look interesting here.

Verint Systems (VRNT) provides actionable intelligence solutions and value-added services worldwide. Its solutions capture, distill and analyze underused information sources, such as voice, video and unstructured text. Four reasons VRNT is a solid pick for growth and value investors at $27 a share:

  • The seven analysts that cover the stock have a median price target of $39.50, more than 40% over the current stock price. The stock is cheap at just over 9x forward earnings, a discount to its five-year average (12.1).
  • The company has grown revenues at a consistent and solid clip over the past five years. Analysts have it pegged for between 8% and 12% sales growth over the next two fiscal years.
  • Given its small market cap (around $1.5 billion), important niche (business intelligence), growing sales, customer list (85% of Fortune 100 use its solutions) and solid cash flow, it could be a logical buyout candidate.
  • The stock is at near-term technical support (see chart below).

Source: Yahoo!

Check Point Software Technologies (CHKP) develops a variety of combined hardware and software products, as well as services for information technology security worldwide. Four reasons CHKP has value at $48 a share:

  • Earnings are moving up at a nice clip. The company made $2.13 a share in 2010 and $2.87 in 2011. Analysts have it pegged for earnings of $3.18 a share in 2012 and $3.53 in 2013.
  • The company has grown revenues at better than a 14% annual clip over the past five years, despite the difficult economic environment. Analysts predict approximately 9% annual sales growth for both 2012 and 2013.
  • The company has almost $1.4 billion in net cash on its balance sheet (around 15% of its market capitalization). It also has had 12 straight quarters of meeting or beating consensus earnings estimates.
  • The median price target by the 22 analysts that cover the stock is $61.50, some 30% above the current stock price. It was upgraded or initiated as a Buy in the second quarter by both Wunderlich and MKM Partners.
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At the time of publication, Jensen had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Technology

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