Best Small-Cap Tech Stock for 2017

The technology sector enjoys several tailwinds, as cash-rich corporations make the IT capital improvements they've deferred for years.

The benchmark Technology Select Sector SPDR ETF (XLK) has generated a year-to-date total return of 8.2%. However, not all tech stocks are created equal. Some are one-product wonders, capitalizing on new and fickle consumer fads. Others are falling behind as rivals come up with better mousetraps.

High-flying tech stocks have a nasty habit of crashing and burning when their products encounter serious competition from disruptive improvements.

However, you can profit from technology's growth, as well as the small-cap resurgence expected in 2017, with shares in sure-footed Progress Software (PRGS) . This stock rarely gets covered by the financial press, but PRGS is a chance for you to reap small-cap outperformance without the undue risk of thinly capitalized tech newcomers.

Based within Boston's Route 128 technology corridor, Progress provides cloud-based and software-as-a-service data solutions for companies in a broad variety of industries.

Progress is a global supplier of application development, deployment and management technology, Internet and intranet enabling technologies. The company's products are used at over 60,000 organizations in 140 countries including 90% of the Fortune 500.

With a market cap of $1.4 billion, Progress is small enough to offer the potential for market-beating growth that's tough to achieve for megacap rivals such as Microsoft (MSFT) , IBM (IBM) , Oracle (ORCL) and Cisco Systems (CSCO) . PGRS shares have soared 20.6% over the past 12 months.

Progress Software is scheduled to report quarterly earnings on Wednesday, March 29. The average analyst consensus is that earnings will come in at 26 cents, compared to 27 cents in the same quarter a year ago. Next year's year-over-year earnings growth is estimated at 5.5%. Over the next five years, earnings growth is pegged at 10% on an annualized basis.

Software stocks are a good bet for 2017. Research firm Gartner reports that global spending on software came in at $333 billion in 2016, for a year-over-year jump of 5.9%.

Gartner predicts that software spending will increase 6.8% to reach $355 billion in 2017. That's considerably higher than the estimated spending growth rate in 2017 of 2.7% for the overall tech industry. The research firm also predicts that total global IT spending this year will rise 2.9% year-over-year to $3.5 trillion.

Every portfolio should have exposure to the tech sector as well as small caps; Progress fits the bill on both counts.

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John Persinos is an analyst with Investing Daily. At the time of publication, he owned stock in Apple, Cisco and Oracle.

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