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published in Blogs

Jun 04, 2020

Software Stocks Leading the Way in 2020, but the Top 7 Companies are Overvalued Currently

At the beginning of 2020, I wrote an outlook for a publisher. The goal was to divulge what I thought would be the top performing sectors for the year. I am happy to say that I mentioned that I really liked software stocks as there were so many companies in the group with strong fundamental indicators. Of the 33 industry groups from Investor’s Business Daily, the software sector has led the way so far in 2020 with a gain of 23.11%, at least through June 1. Unfortunately, I was also bullish on banks and that sector ranks 32nd out of 33 for its price performance thus far.

Of course, the software industry is part of the larger tech sector and you can even break the software companies down into smaller groups. There are application software and enterprise software companies. One segment of the software industry that has performed particularly well is the “software as a service” group.

What separates this group of stocks from other software manufacturers is that all of these companies provide software that provides specific needs or services for customers. For instance, Rosetta Stone is in the group and it helps consumers learn various language skills. Workday is in the group and it helps users manage critical business functions and optimize their financial and human capital resources. Notable companies in this group include Adobe Inc (NASDAQ: ADBE), Salesforce.Com Inc (NYSE: CRM), Workday Inc (NASDAQ: WDAY), Palo Alto Networks Inc (NYSE: PANW), Citrix Systems, Inc. (NASDAQ: CTXS).

On the Tickeron platform, there are 16 stocks in the software as a service theme. Looking at these stocks over the last six months, 15 of them have seen their stock price increase while the S&P 500 is up just less than 1.0%. Of these software firms, 11 of them are up over 10% in the last six months and six are up over 20%. Ring Central (NYSE: RNG) jumped 63% over the last six months and that was the top performer in the group while Veeva Systems (NYSE: VEEV) has gained 48.8%.

The price performance from the group has been incredible over the last six months. However, I was looking at the stocks in the Tickeron screener and there was something that jumped out at me. The current valuation ratings for so many of these companies fall into the overvalued category. In all, 11 of the 16 stocks are overvalued based on this indicator while three are fairly valued and two are undervalued. I arranged the stocks based on their market cap and took a screenshot. The top seven stocks are shown below with the Valuation’s highlighted.

For Adobe (Nasdaq: ADBE), the valuation rating is the only negative fundamental rating at this time. I should divulge that I have Adobe in my portfolio currently and it has been there since last October. It is also worth mentioning that the company is getting ready to release earnings on June 11. Adobe is the largest of these companies based on market cap.

For Salesforce.com (NYSE: CRM) the valuation rating is one of two indicators that are potential negatives for the company. The only other one marked in red is the seasonality rating.

Looking at some of the other top companies based on market cap, I see several stocks that have been in my portfolio at times over the past year and a half. Paycom Software (NYSE: PAYC) is currently in my portfolio and this is the second time in the past year. It was in the portfolio last fall and I took profits toward the end of the year before buying it again at the beginning of May.

Palo Alto Networks (NYSE: PANW), Workday (Nasdaq: WDAY), and Veeva have all been in my portfolio at some point in the past year.

The fundamental ratings for most of the companies are decidedly bullish, but those valuation ratings are bit of a concern. The ratings are elevated currently after the big gains off the March lows. For long-term investors these stocks are certainly attractive based on the fundamental ratings, but now might not be the time to buy them based on the technical indicators.

My own personal investment philosophy is that the fundamentals tell us what stocks we should buy, but the technical indicators tell us when we should buy them. With that in mind, now it may not be time to buy software stocks.

Related Tickers: RNG

John Jacques

published in Blogs

May 16, 2022

A.I. Stock Market Predictions: Head & Shoulders

Statistics for the Head-and-Shoulders Bottom Pattern The days where only hedge funds used algorithms to trade stocks are officially over. Now retail investors can use Artificial Intelligence (A.I. Here’s an example of the algorithm in action: Late last year, Tickeron’s A.I.

Edward Flores

published in Blogs

Apr 29, 2022

How to Become the Millionaire Next Door

The Golden Gate Bridge is always a fixture of these walks too, one of man's most beautiful creations. As we were walking, at one point she turned to me and said, "Man, I'll never have a million dollars."" My girlfriend is 27 years old and works as a graphic designer, making about $75,000 a year.

Sergey Savastiouk

published in Blogs

May 16, 2022

When Is the Next Recession Coming?

However, we also know that economists predicted 22 recessions out of 11 that took place since 1945. Are there real recession signs we should watch for?Indeed, the answer is yes, and here are a few very important ones: The first one is almost obvious and known to everyone – it is the Fed.

Sergey Savastiouk

published in Blogs

Mar 14, 2023

How to Start Trading Penny Stocks

Penny stocks have long been marginalized within the professional investment community, oftentimes being painted with a broad brush of simply being “too risky.” Leonardo DiCaprio’s depiction of the penny stock peddling conman, Jordan Belfort, in the Wolf of Wall Street certainly didn’t help.Here are four reasons to start trading them now. Reason #1: Let’s State the Obvious -- Penny Stocks are Cheap A single share of Apple Inc. costs over $350.

Dmitry Perepelkin

published in Blogs

Mar 14, 2023

5 Habits that Lead to Successful Investing

To consistently make money in this industry, you need emotional fortitude, an analytical mind, and a willingness to self-reflect. Despite trading and investing being two different activities, these principles can be applied to both.Conversely, investors with good habits often become great traders. Rather than full sentences for titles, we’ve labeled each of our top-five investing habits using a single word principle.

Allana

published in Blogs

Mar 23, 2023

What’s the Difference Between Data Analytics and Machine Learning?

Artificial intelligence (AI) technology is developing rapidly.Data mining can deliver raw numbers, but it does not necessarily provide actionable insights. Structure is necessary to taking abstract information and extracting commonalities, like averages, ratios, and percentages.

Sergey Savastiouk

published in Blogs

Mar 13, 2023

4 Tips for Fast, Effective Stock Analysis

With just a few clicks, an investor can search for individual stocks, categories of stocks, sectors, or investment themes, and then he or she can conduct a full range of technical and fundamental analysis within seconds.All powered by Artificial Intelligence. Below, we give you 5 tips for fast, effective stock analysis using Tickeron’s Screener.

Sergey Savastiouk

published in Blogs

Mar 20, 2023

5 Golden Principles in Investing

You have enough faith in that stock, based on research, that the return will equal or exceed the investment. Do unto others.The principles outlined here will ensure that happens. Principle #1: Diversification Investors can’t be one-dimensional when constructing a portfolio.

John Jacques

published in Blogs

Mar 24, 2023

If Hedge Funds are Using AI to Invest, Why Shouldn’t You?

Some of the world’s biggest financial institutions have devoted multi-million dollar budgets to developing algorithms that can find patterns in the market, identify trends, and perform automated trading designed to take advantage of even the smallest price movements. The AI revolution is so big that as it stands today, the world’s five biggest hedge funds all use systems-based approaches to trade financial markets.Indeed, quantitative trading hedge funds now manage $918 billion (according to HFR), which amounts to 30% of the $3 trillion hedge fund industry – a percentage continues to grow with each year that passes.

Sergey Savastiouk

published in Blogs

Mar 15, 2023

The five most important Lessons Learned After 10,000 hours of Trading

Ten thousand hours of active trading, broken down into forty-hour weeks, amounts to almost five years. Having surpassed that milestone myself, I now understand why it's significant for any trader's journey. The early years taught me valuable lessons that have shaped my approach to trading. It's a misconception that great traders are born with innate talent. The truth is that it takes years of...