Microsoft and 4 Other Software Companies to Buy Now

NEW YORK (TheStreet) - Window 10 by Microsoft (MSFT) is set for a July 29 launch and observers are wondering if the software company will be able to move past the poor reception it received for Windows 8.

Despite the availability of other operating systems such as Apple (AAPL) Mac OS X and Google (GOOGL) Chrome, Microsoft still generates roughly 25% of its quarterly revenue from Windows.

TheStreet Ratings rates the company a buy. Here are four other software companies that are also rated "Buy."

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

The stocks on the list currently have a Buy, B+ or better rating by TheStreet Ratings.

Check out which software companies you should buy. And when you're done be sure to read which Dow stocks are the best of the best.

Note: Year-to-date returns are based on June 26, 2015 closing prices.

SYMC Chart SYMC data by YCharts

1. Symantec Corp. (SYMC)
Market Cap: $16.1 billion
Rating: Buy, B+
Year-to-date return: -7.4%

Symantec Corporation, together with its subsidiaries, provides security, backup, and availability solutions worldwide. Its products and services protect people and information in various environments from the mobile device and enterprise data center and to cloud-based systems.

TheStreet said: "We rate SYMANTEC CORP (SYMC) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has slightly increased to $488.00 million or 8.68% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -15.89%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • SYMANTEC CORP's earnings per share declined by 19.4% in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, SYMANTEC CORP reported lower earnings of $1.26 versus $1.27 in the prior year. This year, the market expects an improvement in earnings ($1.86 versus $1.26).
  • SYMC, with its decline in revenue, slightly underperformed the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 8.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

 

 

CHKP Chart CHKP data by YCharts

2. Check Point Software Technologies Ltd. (CHKP)
Market Cap: $14.4 billion
Rating: Buy, A-
Year-to-date return: 1.4%

Check Point Software Technologies Ltd. develops, markets, and supports a range of software, combined hardware, and software products and services for information technology (IT) security worldwide.

TheStreet said: "We rate CHECK POINT SOFTWARE TECHN (CHKP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 8.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CHKP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, CHKP has a quick ratio of 1.66, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, CHECK POINT SOFTWARE TECHN's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for CHECK POINT SOFTWARE TECHN is currently very high, coming in at 89.58%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 43.18% significantly outperformed against the industry average.
  • Net operating cash flow has significantly increased by 70.10% to $297.09 million when compared to the same quarter last year. In addition, CHECK POINT SOFTWARE TECHN has also vastly surpassed the industry average cash flow growth rate of -15.89%.

 

 

MSFT Chart MSFT data by YCharts

3. Microsoft Corp. (MSFT)
Market Cap: $365 billion
Rating: Buy, A-
Year-to-date return: -2.6%

Microsoft Corporation develops, licenses, markets, and supports software, services, and devices worldwide. The company's Devices and Consumer (D&C) Licensing segment licenses Windows operating system and related software; Microsoft Office for consumers; and Windows Phone operating system.

TheStreet said: "We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 6.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.65 is very high and demonstrates very strong liquidity.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for MICROSOFT CORP is currently very high, coming in at 74.02%. Regardless of MSFT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MSFT's net profit margin of 22.94% compares favorably to the industry average.

 

VDSI Chart VDSI data by YCharts

4. VASCO Data Security International Inc. (VDSI)
Market Cap: $1.1 billion
Rating: Buy, A-
Year-to-date return: 9.9%

VASCO Data Security International, Inc., together with its subsidiaries, designs, develops, markets, and supports hardware and software security systems that manage and secure access to information assets worldwide.

TheStreet said: "We rate VASCO DATA SEC INTL INC (VDSI) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and impressive record of earnings per share growth. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VDSI's very impressive revenue growth greatly exceeded the industry average of 7.3%. Since the same quarter one year prior, revenues leaped by 67.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • VDSI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.24, which clearly demonstrates the ability to cover short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Software industry and the overall market, VASCO DATA SEC INTL INC's return on equity exceeds that of both the industry average and the S&P 500.
  • Powered by its strong earnings growth of 277.77% and other important driving factors, this stock has surged by 183.16% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, VDSI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • VASCO DATA SEC INTL INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, VASCO DATA SEC INTL INC increased its bottom line by earning $0.82 versus $0.28 in the prior year. This year, the market expects an improvement in earnings ($1.02 versus $0.82).

 

 

ORCL Chart ORCL data by YCharts

5. Oracle Corp. (ORCL)
Market Cap: $176.4 billion
Rating: Buy, A
Year-to-date return: -8.8%

Oracle Corporation develops, manufactures, markets, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide.

TheStreet said: "We rate ORACLE CORP (ORCL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ORCL's debt-to-equity ratio of 0.85 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.92 is very high and demonstrates very strong liquidity.
  • The gross profit margin for ORACLE CORP is currently very high, coming in at 82.79%. Regardless of ORCL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ORCL's net profit margin of 25.75% compares favorably to the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.3%. Since the same quarter one year prior, revenues slightly dropped by 5.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • ORACLE CORP's earnings per share declined by 22.5% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ORACLE CORP reported lower earnings of $2.22 versus $2.39 in the prior year. This year, the market expects an improvement in earnings ($2.73 versus $2.22).

 

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