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4 Software Stocks that Deserve a Place in Your Portfolio

A bright sector future will brighten these stocks in your portfolio

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Over the years, dynamics of the software industry, the ways in which organizations conduct their businesses and people connect with each other have changed, thanks to technological progress and innovation.

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 (A.I.) technology, chip shrinking technology, self-driving cars, personal assistants, high-speed Internet and home automation, thus setting the stage for robust growth in the software industry.

With the U.S. economy rebounding, as evident from the improving economic data for GDP, the Consumer Confidence Index, unemployment rate and factory activity data, we believe that there are tremendous growth opportunities for software stocks in the year ahead.

Notably, as per Gartner Inc (NYSE:IT), worldwide spending on software reached $333 billion in 2016, registering year-over-year increase of 5.9%. The independent research firm predicts that spending will rise 6.8% in 2017 to reach $355 billion. This is much higher than the projected rate of 2.7% increase in spending for the entire tech industry.

Furthermore, software stocks with solid earnings continue to do well in comparison with other sectors. During the last earnings season, most of the software stocks reported positive earnings surprises.

So far this year, the software industry has had a remarkable run in the stock market, with iShares North American Tech-Software (IGV) registering a return of 16.3%. This 58-stock ETF provides exposure to the software segment of the broader U.S. technology space.

The ETF surpassed the Technology SPDR (NYSEARCA:XLK), which comprises U.S. technology stocks, return of 10.5% as well as Dow Jones Industrial Average (INDEXDJX:.DJI), NASDAQ Composite (INDEXNASDAQ:.IXIC) and S&P 500’s (INDEXSP:.INX) gain of 5.9%, 9.6% and 6.4%, respectively.

As software promises a bright future in the year ahead, we believe adding some of these stocks to your portfolio will help boost returns.

4 Software Stocks to Buy with Solid Potential

With the help of our style score system, we have picked four software stocks that have performed well so far this year and have the potential to keep the momentum going in the next year. They also have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Style Score of “A” or “B.”. You can see the complete list of today’s Zacks #1 Rank stocks here.

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