In this article, we will look at the 7 Cheap Software Stocks to Invest In.
Avoiding Hype and Focusing on Downstream Opportunities
Billionaire investor David Tepper, Founder and President of Appaloosa Management, recently shared his thoughts on the market and investment strategies in a conversation on CNBC on September 26. Tepper began by discussing his views on tech stocks, specifically mentioning Meta and Google, which he owns, and Nvidia, which he had previously sold due to concerns about its high valuation.
Tepper also touched on energy, particularly the growing demand for power to support the development of new technologies such as artificial intelligence (AI). He emphasized the importance of natural gas in meeting this demand, stating that it is necessary for powering AI’s growth. Tepper expressed skepticism about the feasibility of relying solely on renewable energy sources, citing the need for a more practical and realistic approach to meeting the country’s energy needs. He also mentioned that he has spoken to governors from both sides of the aisle and believes that a collective effort is needed to address the country’s energy requirements.
When asked about the upcoming election, Tepper stated that he is a proponent of a split government, believing that it is beneficial for the economy and the markets. He expressed concern about the potential for a sweep by either party, citing the risks of populist and progressive policies that could lead to giveaways and increased government spending. Tepper emphasized that his views are purely from a market perspective and that he does not want to see either party dominate the government. He believes that a split government will prevent either party from implementing extreme policies, which would be beneficial for the markets.
Regarding AI, Tepper acknowledged that it is a rapidly growing field but expressed caution about investing directly in AI companies. Instead, he prefers to invest in downstream companies that will benefit from the growth of AI. Tepper also mentioned that he is impressed by the potential of AI to drive growth and innovation, but is uncertain about the long-term prospects of certain companies, which are heavily reliant on AI.
In terms of his investment strategy, Tepper emphasized the importance of being cautious and not getting caught up in the hype surrounding certain stocks or trends. He noted that he has been successful in the past by being contrarian and taking a more nuanced approach to investing. Tepper also mentioned that he is not afraid to take a step back and re-evaluate his investment decisions, citing the importance of being adaptable in a rapidly changing market environment.
David Tepper’s insights on the market and investment strategies offer a valuable perspective on the current state of the economy and the tech industry. His emphasis on being cautious and adaptable in a rapidly changing market environment is a timely reminder for investors to remain vigilant and avoid getting caught up in the hype surrounding certain stocks or trends. With that in context, let’s take a look at the 7 cheap software stocks to invest in.
A software developer typing on a laptop in a modern office environment.
Our Methodology
To compile our list of the 7 cheap software stocks to invest in, we used Finviz and Yahoo stock screeners to find the 30 largest software companies with a PE ratio of less than 20. From that list, we narrowed our choices to the 7 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of October 3. We also added the hedge fund sentiment around each stock, which was taken from our database of 912 elite hedge funds, as of Q2 of 2024. The list is sorted in ascending order of their average upside potential.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Cheap Software Stocks to Invest In
7. NICE (NASDAQ:NICE)
Forward P/E Ratio as of October 3: 15.48
Upside Potential: 46.35%
Number of Hedge Fund Holders: 29
NICE (NASDAQ:NICE) is a leading CCaaS (Contact Center as a Service) and provides software solutions for enterprise organizations that focses on customer engagement, financial crime prevention, and AI-driven analytics. The company’s application software is widely adopted across various industries and is recognized for its leadership in AI-powered analytics solutions.
NICE (NASDAQ:NICE) has adopted and recognized the requirement for its enterprise solutions to digitalize, be cloud-based, and, more recently, use artificial intelligence. Its SaaS (software-as-a-service) model and its comprehensive lineup of CX solutions ensure recurring and increasing revenues from existing customers. NICE’s (NASDAQ:NICE) integrated solutions and its full range of products give it a competitive advantage. The company’s CXone, a CCaaS, helps with customer interactions, from AI chatbots to voice conversations. NICE (NASDAQ:NICE) also offers cloud-based financial crime and compliance solutions through its X-Sight platform.
The company has grown its customer base, patents, and products organically and through multiple bolt-on acquisitions. NICE (NASDAQ:NICE) acquired LiveVox in December 2023 for $424 million. For FY24, LiveVox is expected to contribute $142 million in revenues. NICE (NASDAQ:NICE) has also made several smaller acquisitions for a total sum of $184 million in 2021 and 2022, and Mattersight, a cloud-based analytics for customer service organizations, was acquired for $105 million in 2018.
NICE’s (NASDAQ:NICE) financial performance has been impressive, with revenue growth of over 10% and earnings growth higher than sector averages. Operating margins have improved from 28.7% to 29.6% in FY23, and non-GAAP EPS was $8.79, 15% higher compared to last year.
NICE (NASDAQ:NICE) is a compelling investment with a strong financial profile, high growth potential, and a discounted valuation. The company’s comprehensive CX platform, cloud-based solutions, and AI innovations drive market share gains and long-term growth potential.
6. LiveRamp (NYSE:RAMP)
Forward P/E Ratio as of October 3: 14.98
Upside Potential: 47.14%
Number of Hedge Fund Holders:
LiveRamp (NYSE:RAMP) is a data collaboration platform that allows companies to develop and use data in a secure way to change the overall customer experience and generate opportunities for effective business growth. LiveRamp’s (NYSE:RAMP) software is essential for marketers looking to optimize their digital advertising strategies in a privacy-focused way.
LiveRamp (NYSE:RAMP) has opportunities for growth through the development of its data collaboration platform and strategic partnerships. The company plans to integrate and scale Habu’s Clean Room technology, a technology to allows users to collaborate on data without moving or copying it, and has exhibited favorable customer feedback and a growing sales pipeline.
LiveRamp (NYSE:RAMP) also partners with Google’s DSP, Display & Video 360, which enables advertisers and publishers to align their first-party data for personalized advertising securely. However, LiveRamp (NYSE:RAMP) also faces challenges, including the delay of Google’s launch of a change in third-party cookies to early 2025. The company is also upgrading its products and demonstrating customer loyalty in a competitive environment.
LiveRamp’s (NYSE:RAMP) gross margin has remained relatively stable at around 72-74% throughout the year, reflecting efficient cost management despite fluctuating revenue costs. The company is well-positioned to leverage the growing requirement for secure first-party data collaboration and addressable digital advertising.
LiveRamp’s (NYSE:RAMP) ability to execute its growth strategy and improve its profitability makes it an attractive investment opportunity.