3 Buy-Rated Software Stocks Surging to New All-Time Highs

The major stock market indexes soared earlier this week on the back of investors’ optimism surrounding the FDA’s full approval of Pfizer Inc. (PFE) and BioNTech SE’s (BNTX) COVID-19 vaccine. On the other hand, COVID-19 cases continue to rise in several parts of the world due to the rapid spread of its Delta variant.

While the vaccine’s full approval is expected to increase the vaccination rate in the United States, the resurgence of COVID-19 cases worldwide should lead to increased demand for advanced software solutions as people extend their remote lifestyles. According to Statista, software market revenue is expected to hit $823.71 billion by 2026, growing at a 7.2% CAGR.

So, we think it could be wise to bet on quality software stocks Microsoft Corporation (MSFT), Adobe Inc. (ADBE), and Cadence Design Systems, Inc. (CDNS). These stocks have recently soared in price to hit new all-time highs and could continue advancing in the near term. Each of these stocks has an overall B (Buy) rating in our proprietary POWR Ratings system.

Click here to check out our Software Industry Report for 2021

Microsoft Corporation (MSFT)

Technology giant MSFT’s broad product portfolio includes personal computers (PCs), tablets, gaming and entertainment consoles, and related accessories. In addition, the company is making several advances in the cloud space with the help of Microsoft Azure.

On July 14, 2021, MSFT announced the launch of Windows 365, a cloud service that introduces a new way to experience Windows 10 or 11 to businesses of all sizes. The launch represents a significant step towards its aim of creating a new PC category—the Cloud PC.

Furthermore, MSFT announced a strategic cloud partnership with Morgan Stanley (MS) in June  to accelerate MS’ digital transformation and help shape the future of innovation in the financial services industry. The partnership is expected to further expand MSFT’s reach in the financial industry.

MSFT’s total revenue increased 21.3% year-over-year to $46.15 billion for its  fiscal fourth quarter, ended June 30, 2021. The company’s operating income came in at $19.10 billion, representing a 42.4% year-over-year rise. In addition, its net income increased 46.9% year-over-year to $16.46 billion. Also, its EPS came in at $2.17, up 48.6% year-over-year.

For its fiscal year 2022, analysts expect MSFT’s revenue to be $191.55 billion, representing a 14% year-over-year rise. The company’s EPS is expected to increase 8.8% year-over-year to $8.76 in fiscal 2022. It surpassed  consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 39.9% in price to close yesterday’s trading session at $299.09. Also, the stock is currently trading 2.2% below its $305.84 all-time high, which it hit on August 20, 2021.

MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has an A grade for Sentiment, and a B grade for Stability and Quality. Within the Software-Application industry, it is ranked #11 of 145 stocks. Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MSFT.

 Adobe Inc. (ADBE)

One of the largest and most diversified software companies globally, ADBE’s flagship product, Creative Cloud, enables consumers to download and access the latest versions of its innovative products. The company operates through three segments: Digital Media; Digital Experience; and Publishing.

ADBE announced on August 19 that it had signed an agreement to acquire Frame.io, a leading cloud-based video collaboration platform. This is expected to help ADBE deliver a collaboration platform that powers the video editing process.

In April 2021, ADBE launched the next generation of its Real-time Customer Data Platform (CDP), which will help deliver a personalized experience without third-party cookies. The company’s executive vice president and general manager, Digital Experience Business and Worldwide Field Operations, Anil Chakravarthy, said, “With Adobe Real-time CDP, we are partnering with brands to deliver relevant, responsive, and respectful experiences through first-party data.”

ADBE’s total revenues increased 22.6% year-over-year to $3.84 billion in the second quarter, ended June 4, 2021. Its non-GAAP operating income came in at $1.76 billion, representing a 32% year-over-year rise. Its non-GAAP net income increased 22.7% year-over-year to $1.46 billion, while its non-GAAP EPS came in at $3.03, representing a 23.7% year-over-year rise.

For its fiscal year 2021, ADBE’s revenue and EPS are expected to grow 21.8% and 21.2% year-over-year to $15.68 billion and $12.24, respectively. In addition, it surpassed consensus EPS estimates in each  of the trailing four quarters. Over the past six months, the stock has gained 41.9% in price to close yesterday’s trading session at $652.39. However, ADBE is currently trading 1.3% below its $661.06 all-time high, which it hit on August 25, 2021.

ADBE’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.

In addition, it has an A grade for Quality, and a grade B for Stability and Sentiment. It is ranked #21 in the Software-Application industry. Click here to see the additional POWR Ratings for ADBE (Growth, Value, and Momentum).

Cadence Design Systems, Inc. (CDNS)

CDNS has grown significantly over the past few years and is one of the established companies in the software space. It  applies its underlying Intelligent System Design strategy to deliver software, hardware, and intellectual property (IP) that turns design concepts into reality. In addition, its functional verification offering includes JasperGold, Xcelium, and Protium.

CDNS announced on August 18 that Picocom had deployed its Palladium Enterprise Emulation Platform to accelerate the verification and pre-silicon software validation of its system-on-chip (SoC) designs for 5G open radio access network (RAN) applications. This move indicates  the increasing demand for its solutions.

Also,  Tower Semiconductor Ltd. (TSEM) and CDNS announced the release of a silicon-validated SP4T RF-SOI switch reference design flow on August 16, using the CDNS Virtuoso Design Platform and RF Solution. Since this product could play a crucial role in advanced 5G wireless, wireline infrastructure, and automotive IC products, it could witness increasing demand.

For its fiscal second quarter, ended July 3, 2021, CDNS’ net revenue increased 14.1% year-over-year to $728.29 million. The company’s non-GAAP operating margin as a percentage of total revenue came in at 39%, versus  35% in the year-ago period. Its non-GAAP net income was  $238.29 million, up 29.1% year-over-year. Also, its non-GAAP EPS increased 30.3% from the same period last year to $0.86.

CDNS’ revenue is expected to be  $2.95 billion in its fiscal year 2021, representing a 10% year-over-year rise. The company’s EPS is expected to increase 13.2% year-over-year to $3.17 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 41% in price to close yesterday’s trading session at $159.37, after hitting its $160.63 all-time high. It is currently trading only 0.8% below its all-time high.

It’s no surprise that CDNS has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Quality, and a B grade for Stability and Sentiment.

CDNS is ranked #19 in the Software-Application industry. Click here to see the additional POWR Ratings for CDNS’ Growth, Momentum, and Value as well.

Click here to check out our Software Industry Report for 2021

MSFT shares were trading at $299.44 per share on Friday morning, up $0.35 (+0.12%). Year-to-date, MSFT has gained 35.51%, versus a 20.97% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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