3 Software Stocks Making a Comeback

software stocks - 3 Software Stocks Making a Comeback

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With Tuesday’s rally to new highs, the Nasdaq has officially ended its correction. Fears of rising interest rates killing growth stocks were overblown and have officially been laid to rest. To celebrate the fresh record, we’re going fishing for bargains in software stocks.

And when I say “bargain,” I’m speaking in relative terms. Though the valuation for all of today’s picks is far from cheap, they’re at least offering a modest discount to what you had to pay a few months ago.

We’re focusing on tickers that are just now turning up from their downtrends. With price bottoms in place and resistance levels finally giving way, now is as good a time as any to cast a line.

All three picks scored gains north of 4% on Tuesday and were sitting atop my watchlist. In other words, they’re already heating up.

That said, here are my favorite software stocks to buy.

  • Zoom Video Communications (NASDAQ:ZM)
  • Crowdstrike (NASDAQ:CRWD)
  • Roku (NASDAQ:ROKU)

After the usual breakdown of their price patterns, I’ll share my top options trade idea. The cost of each is less than $400, so it doesn’t cost much to play along.

Software Stocks: Zoom (ZM)

While some growth stocks stumbled, others fell off a cliff. Unfortunately for Zoom, it followed the latter path. Plunging from $588.84 to $302.32 translates into a nearly -50% decline. We’re now deep in bear country. Given the damage inflicted on longer-term time frames, ZM stock has its work cut out for it before a true bottom can form.

But I like its chances after the recent bottoming formation that’s formed.

Zoom Video Communications (ZM) stock with upside breakout

Source: The thinkorswim® platform from TD Ameritrade

We’ve now seen buyers swarm to defend the $310 zone multiple times. It’s allowed the trend trajectory to shift sideways, bringing some much-needed neutrality to what was an extremely bearish trend.

We still need to push above the falling 50-day moving average to confirm a bottom is in, but if you’re willing to buy in anticipation of the event, then now is the time.

The Trade: Buy the Aug $350/$370 bull call for $7.15.

Crowdstrike (CRWD)

Crowdstrike was a massive winner in the wake of the global pandemic. But, as is always the case with high beta stocks, the momentum slices both ways. February’s sucker punch came swift and hard, ultimately sending prices down 33% in a few weeks. The retest of the low held, and we’ve done nothing but go up ever since.

With Tuesday’s rip, CRWD stock officially completed and confirmed a double bottom pattern. Breaking the 50-day moving average provides further evidence that the path of least resistance has shifted from down to up.

Crowdstrike (CRWD) stock with double bottom breakout

Source: The thinkorswim® platform from TD Ameritrade

Continued tech strength should power prices back to February’s peak. That leaves a lot of potential upside for bullish trades.

The Trade: Buy the June $230/$240 bull call for $2.65.

Roku (ROKU)

Roku rounds out our trio of software stocks to buy. The current advance has the stock nearly $100 off the lows and just eclipsed the 50-day moving average. Volume patterns are adding to the bullish argument with multiple accumulation days printed over the past two weeks. Roku is slightly overbought in the short run and could see a pullback or pause develop.

It wouldn’t deter my optimism, though. If anything, it will create a lower-risk entry for those willing to bet the recovery has legs.

Roku (ROKU) stock with bullish breakout

Source: The thinkorswim® platform from TD Ameritrade

To capitalize, consider purchasing call spreads.

The Trade: Buy the June $400/$420 bull call for $7.10.

On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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