Under most ordinary circumstances, a recessionary shock to the economy doesn’t incentivize hypergrowth software stocks. Quite the contrary, investors usually seek protection under such negative implications. Typically, the focus shifts toward stable companies that have boring but indispensable businesses. Of course, the novel coronavirus pandemic has been anything but ordinary.
For one thing, the governmental response was unprecedented. Despite Republicans being the party of self-responsibility and non-reliance on the government, former President Donald Trump’s administration spearheaded initiatives to get money directly into the hands of the American people. In sharp contrast to the divisive political environment, both left and right ever so briefly came together to support the cash infusion. And some of that money clearly went to software stocks.
Second, the unprecedented low-interest rate environment encouraged investors to take risks with their greenbacks. By hoarding the money, a heightened inflation rate would kill its value. Instead, many felt the superior course of action was to take risks with relevant investments like software stocks. Plus, for those who weren’t deeply affected by the pandemic, the stimulus was “free” money from the government. Why not speculate at that point?
As well, lower borrowing costs encouraged risk-on behaviors. According to information from the Financial Industry Regulatory Authority, stock trading on margin hit an all-time high in August of this year. Although the following September saw a decrease in margin trading, it wasn’t by much. Further, it’s reasonably safe to say that those who deploy margin are likely focusing on trades like hypergrowth software stocks, not boring dividend plays.
Whether people leveraged their positions or not, ultimately, the broader digitalization technology space is the place to be due to its rising relevance. Therefore, contrarians reason that software stocks will provide ample profitability, particularly those that have been beaten down:
- Baidu (NASDAQ:BIDU)
- Sohu (NASDAQ:SOHU)
- Sabre (NASDAQ:SABR)
- ACI Worldwide (NASDAQ:ACIW)
- Boxlight (NASDAQ:BOXL)
- Super League Gaming (NASDAQ:SLGG)
- Creative Realities (NASDAQ:CREX)
Of course, anytime you’re dealing with securities that have printed some red ink, you’re taking risks. And when hypergrowth software stocks are involved, the risks multiply exponentially. Obviously, you should take extreme precautions when considering these ideas and only invest what you can afford to lose.
Software Stocks to Buy: Baidu (BIDU)
One of China’s most powerful software stocks, Baidu has its hands on all things internet. Additionally, the company has ties to many other relevant innovations, including artificial intelligence and video streaming solutions. These qualities have made BIDU a fan favorite. However, since hitting a record high in February of this year, things haven’t looked all that hot for this Chinese tech play.
Primarily, investors became jittery about China’s increasingly draconian tone on its tech sector. With the Chinese government imposing a harsher anti-trust policy, Baidu’s expansion opportunities have been limited and in some cases, even stymied. Since hypergrowth was long the modus operandi of BIDU, it was easy to see why investors chopped valuations down.
For full disclosure, I’m pensive about investing in China at the moment given its economic problems. Nevertheless, if you can stomach severe risk with your software stocks, BIDU might provide an opportunity.
On the top line, the company has performed very well, generating nearly $4.9 billion in the second quarter of this year. That’s up 20% against the year-ago level. Thus, if you can look past the ugly, you might have something with BIDU.
Another Chinese internet services company, Sohu and its subsidiaries are involved in multiple tech subsegments, including advertising, a search engine and online gaming, among other businesses. But the narrative of SOHU being one of the software stocks to consider picking up at a discount features a slightly different profile than that of compatriot Baidu.
Both shares are down from their highs. However, SOHU stock has been trending southbound since the spring of 2011, punctuated temporarily by strong upward movements. Still, when the Covid-19 crisis struck, it seemed that the underlying company was down for the count.
Of course, that didn’t turn out to be the case. Yet SOHU hasn’t enjoyed the same success as other software stocks throughout the globe due to myriad distractions in the Chinese economy. For starters, you have the China Evergrande (OTCMKTS:EGRNF) fiasco that threatens the stability of China’s commercial paper. Further, you have the country’s ballooning debt, which amplifies the Evergrande crisis.
Still, Sohu performed well in 2020, posting revenue of nearly $750 million, up over 11% against 2019’s tally. Further, the positive momentum is carrying over into this year, suggesting contrarians may have a discounted opportunity.
Software Stocks to Buy: Sabre (SABR)
One of the leading software stocks in the global travel industry, Sabre has created a new marketplace for personalized travel. Per its website, the company partners with “airlines, hoteliers, agencies and other travel partners to retail, distribute and fulfill travel.” Of course, you know what happened next.
When it became apparent to world leaders that the coronavirus could not be contained, SABR stock quickly plummeted. With travel grinding to a halt due to a crackdown on non-essential activities — along with several countries closing their borders to stem the tide of infection — the travel industry was the last place to look for software stocks. However, brave contrarians managed to extract incredible profits from SABR’s Covid-19 lows.
While shares are now more elevated, they could still offer substantial gains based off retail revenge. With so many experiences forcibly put on hold last year, millions of American consumers are now out in full force to make up for lost time.
Moreover, the travel industry may be experiencing a delayed effect due to the delta variant’s significant spread. But once that clears, it’s possible SABR will be cleared for takeoff again.
ACI Worldwide (ACIW)
A payments systems company, ACI Worldwide is tied to one of the most relevant business categories available. As you know, transactions are increasingly migrating from physical manifestations to digital. In addition, the rise of cryptocurrencies underlines the point that consumers today prefer convenience over carrying physical cash.
No matter what, this cashless revolution was always going to play an increasingly larger role in society. However, the Covid-19 crisis was the perfect catalyst for accelerating this transition. As multiple media reports pointed out, the pandemic has hastened the rise of the cashless economy.
Specifically for software stocks tied to the digital payments sector, the global health crisis provided a free organic marketing opportunity. While cashless offers myriad convenient benefits, cash is much more secure (taking aside the physical theft argument). What ACI brings to the table is convenience and security, providing the merchants under its network a leg up against their competitors.
While the narrative is compelling, ACIW stock is down over 20% on a year-to-date basis. Still, for contrarians seeking beaten up software stocks with upside potential, ACI might fit the bill.
Software Stocks to Buy: Boxlight (BOXL)
According to a 2017 Pew Research Center report, American students’ academic achievements lagged behind that of other countries. Comparatively, the U.S. ranked around the middle of the pack, which seems contrary to the implications of our powerhouse economy. Apparently, we have all the money in the world, so why can’t we produce superior academic results?
To be fair, one has to look at the global educational gap holistically. For instance, the U.S. has several renowned academic institutions; indeed, the world comes here to learn from the best. However, it’s not safe to rest on such laurels considering that the jobs of tomorrow will increasingly focus on the so-called STEM (science, technology, engineering and math) curriculum.
To remedy this — and to keep pace with our international rivals — Boxlight offers innovative digital learning solutions. Through creative methodologies ranging from virtual classrooms to collaborative learning to student assessments, everything that Boxlight does is geared toward maximizing each student’s potential.
For teachers, the Boxlight platform is easy to utilize and integrates seamlessly with existing infrastructure. While BOXL is one of the software stocks that are down since February of this year, the equity unit appears to be building up for something big.
Super League Gaming (SLGG)
Describing itself as a “leading gaming community and content platform that gives everyday gamers multiple ways to connect and engage with others while enjoying the video games they love,” Super League Gaming was already a relevant concept prior to the Covid-19 crisis. But because of the pandemic, its pertinence fundamentally skyrocketed.
For one thing, video game play increased significantly during the lockdowns. With other entertainment options nullified temporarily because of the pandemic, video games cynically benefitted. Further, it’s not entirely clear what will become of traditional in-person entertainment venues once the pandemic fades away or we become acclimated to the threat.
Either way, video games will be on a tear skyward. And should Covid-19 permanently change the way we interact, the community-focused ethos of Super League Gaming will provide another cynical benefit.
But what really makes SLGG one of the software stocks to consider is that its bullish argument isn’t all storyline driven. Instead, the company posted strong percentage growth in 2020 and, it’s building momentum this year as well. Slowly but surely, Super League could be on a path to surprise folks.
Software Stocks to Buy: Creative Realities (CREX)
On the surface, Creative Realities strikes me as one of the most critical software stocks to buy. Tied to the digital signage industry, the underlying technology replaces static, paper-based advertisements and interfaces with dynamic marketing and interactive platforms. Unfortunately, the Covid-19 crisis knocked the wind off the company’s sails.
With a sudden and unexpected loss of foot traffic due to the crackdown on non-essential activities, Creative Realities suffered a severe revenue loss in 2020. Further, the organization is still on the recovery trek as people become acclimated to the new normal. Sure enough, CREX is well off this year’s highs which was printed in February.
To be clear, CREX is really only for the extreme speculator as shares are priced below $2 at time of writing. Nevertheless, there could be opportunity here. According to MarketsAndMarkets, the digital signage industry was worth $16.3 billion in 2021, with experts projecting that it will command a valuation of $27.8 billion by 2026. That’s a compound annual growth rate of 11.2% during the period, which is nothing to scoff at.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.