Software Loses Its Cisco Glow - TheStreet

Software shares shaved some of their gains Thursday, as rumors and worries overshadowed debatably positive news a day earlier from networking giant


(CSCO) - Get Report


"Yesterday's rally was all based on what Cisco said. That doesn't really have any indication of where software is," said Brendan Barnicle, an analyst at Pacific Crest Securities. "The enterprise applications market is still very, very challenging. I think it probably moves its way back


Barnicle said that a potential preannouncement from


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could be looming on the horizon. The analyst also noted that recently released

same-store retail figures came in weak, which bodes poorly for software tailored toward retailers -- an area that until now has performed strongly.

The only software stocks Barnicle's currently recommending buying are



(MSFT) - Get Report

because its revenue is so diversified, and

BEA Systems


, because its application servers remain in demand as companies deploy previously purchased software.

In Thursday's trading, shares of Microsoft fell $2.85, or 5.2%, to close at $52.12, but still higher than the $49.47 close Tuesday, before Wednesday's rally. Oracle's shares closed down 67 cents, or 7.3%, to $8.48, still up from Tuesday's close of $8.25. Shares of


(MANU) - Get Report

, fell 70 cents, or 5.8%, to $11.40, still up from the close of $9.11 Tuesday. And


(ADSK) - Get Report

, which preannounced earlier this week, gained 12 cents, or 0.8%, closing at $15.30.

Some stocks are trading at relatively low levels that at some point may entice buyers. Many software stocks, including Oracle,



and Microsoft, are hovering around post-Sept. 11 lows.

"The group is really cheap," said SoundView analyst Jim Mendelson. "And, ultimately, I think people believe this is a growth sector and that it will be capable of significant growth, but the time frame when it returns is subject to debate."

"You definitely have to be pretty patient," Mendelson added. "On the one hand, everything has been very hard hit, and yet I would argue that we still would want to focus on better-quality, best-quality names and not be drawn into looking for the cheapest names."

Mendelson names PeopleSoft and

Precise Software Solutions


. For PeopleSoft, Mendelson cited the company's strong cash position -- $1.8 billion in cash and short-term investments on March 31 -- and "unusually happy customer base." PeopleSoft is currently trading at 32 times forward earnings.

Mendelson likes Precise because its software helps companies make the most of their existing IT infrastructure, and it's trading at $11.74, compared with the current $36.90 price of competitor

Mercury Interactive


. However, Mercury boasts a lower price-to-earnings ratio at 41, vs. Precise's 62.