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4 Top Software Stocks To Kick Off 2012

Salesforce.com

Share price: $114.13

Canaccord Genuity believes Wall Street analysts did the cloud software company a "disservice" last quarter when it missed calculated billings. "Single quarter calculated billings are variable (changes in currency, changes in invoicing duration, accounting of acquired revenues, etc.) and not necessarily indicative of a firm's outlook," explained Davis, in the research note. "Revenue and cash flow trends are positive, and we think a look at the firm's off-balance-sheet backlog in Q4 could produce an upside surprise."

Salesforce.com is expected to report earnings on Feb. 16, and analysts polled by Thomson Reuters expect earnings of 40 cents per share on revenue of $622.5 million.

The research firm recommends buying shares now, as shares are cheap, trading at 4.7 times enterprise value divided by revenues, and 27 times 2012 free cash flow.

There are, however, potential caveats to buying shares, says Canaccord. Salesforce.com has increased its headcount by 40% and this may not payoff if the new employees are not as productive as previous ones. The analyst firm also notes that the software maker does not have free cash flow support, and could move lower.

Canaccord sees six-month upside potential of $135 per share in salesforce.com, almost 20% upside from current levels.

Salesforce.com sales have lost 13.45% over the past 12 months, but have gained 12.81% year-to-date, according to Google Finance.

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