8 Software Stocks to Buy in 2021
1. Microsoft
Enterprise software giant Microsoft is one of the few trillion-dollar stocks on Wall Street, and the reason why is well-known at this point. Since CEO Satya Nadella took over in 2014, he has steered MSFT into the future with mobile-friendly and cloud-based services; the Silicon Valley icon now generates more than a third of its revenue from “commercial cloud” software. Shares have increased more than five-fold since Nadella took over as a result of this rethinking of legacy products such as Windows and Office.
What’s more, not only is its Azure segment is the second-largest cloud platform in the world behind Amazon Web Services, it’s also the fastest-growing division within MSFT itself. Consider its October earnings report, where Azure revenue growth clocked in at a staggering 48% rate! When you’re already a dominant force in enterprise technology, that kind of expansion is incredibly difficult to achieve and proves the power of Microsoft products and management.
Beyond this broader trend lifting Microsoft, MSFT could be one of the best tech stocks to buy for 2021 as its dominance in other divisions continues to pay dividends. Its Xbox content and services revenue jumped 30% in the latest quarter as stay-at-home orders have fueled massive growth in gaming. And its Surface revenue jumped 37% as consumers and businesses are in increasingly in the market for next-gen tablets to help with remote work and schooling needs.
If those growth prospects weren’t enough, Microsoft has a staggering $138 billion in cash on its books – adding unrivaled stability to ensure this stock will continue to thrive for many years to come.
2. PayPal Holdings
PayPal Holdings , one of the oldest payments technology stocks on Wall Street, was acquired in 2002 by online auctions giant eBay then spun back out again in 2015 after it became clear that PayPal had a very different business model and growth path.
And in recent years, as cash and checks have become increasingly a thing of the past, PYPL has lived up to that promise in a big way.
Revenue has more than doubled since 2015, from about $9 billion to an estimated $21 billion this fiscal year. The growth rate isn’t slowing down, either, with the fiscal 2020 total about 20% higher than the prior year and another 20% or so expected again in fiscal 2021, according to consensus estimates on Wall Street.
PayPal has evolved far beyond a simple alternative to cash-based transactions, however, via its namesake platform as well as its Venmo subsidiary.
It’s difficult to bet against a tech stock that shows this one-two punch of continued innovation to remain relevant for the future, as well as hard numbers showing continued growth in the here and now. Yes, shares have more than doubled in 2020 to trade at new all-time highs, but investors still might want to load up on PYPL as it remains one of the most attractive tech companies to invest in as we enter 2021.
3. NortonLifeLock Inc.
NortonLifeLock is in the consumer cyber safety business, offering solutions that enable consumers to protect their electronic devices, online privacy, identity, and home networks. The company announced in early December that it was acquiring Avira from Investcorp Technology Partners for approximately $360 million. Avira provides cybersecurity and privacy solutions to customers in Europe and key emarging areas
4. Apple
It’s hard to make a list of must-own tech stocks and not include Silicon Valley giant Apple. The company is a mainstay of consumer electronics stores, with its iconic iPad and iPhone seen as the gold standard for many gadget lovers across the globe.
But Apple is increasingly becoming much more than just a mobile-device manufacturer. In its fiscal Q4 that ended in September, AAPL notched record revenue in part because of its Services arm that includes paid content such as Apple TV, iTunes and its App Store. Services now represent about 19% of total revenue for Apple, clocking in at $53.7 billion annually in fiscal 2020 – and up 16% from the prior year. What’s more, that tally is actually the second-largest business line for Apple behind iPhones; it’s just about equal to the total sales recorded by iPads and accessories including AirPods and the Apple Watch.
This is a crucial trend because this cashflow is “stickier” than device revenue that can be reliant on broader consumer tastes and spending trends. It’s also much higher-margin, since it doesn’t involve manufacturing and supply chains.
While consumers might be enamored with the latest flashy devices that Apple is putting out, investors should pay close attention to the Services division. AAPL could be one of the best tech stocks to buy for 2021 as it builds on its dominant market share and squeeze additional cash from users via its services in 2021.
5. Palo Alto Networks
Cybersecurity stock Palo Alto Networks has outperformed in 2020, more than triple the returns of the S&P 500. But the real potential of PANW in an admittedly crowded subsector of high-tech security firms is most evident in the last few months.
Shares have surged more than 66% since the start of November, largely on the back of great fiscal Q1 results. A few highlights include revenue expansion of more than 20%, and EPS that surged almost 60%. That trend should only continue; its billings also increased more than 20%, hinting that future revenue streams will be even more robust.
Part of that growth is thanks to natural tailwinds as the cyber spending spirals ever higher, with business and governments of all stripes prioritizing network security to protect operations. That need became even more evident recently in the wake of reports that Russian hackers made their way into U.S. government networks, even hitting our nuclear labs.
But it’s also a result of continued innovation, including next-generation security services and improved firewall offerings. This product expansion isn’t just a good way to stay relevant and compete for new business, but also a way to cross-sell and upgrade existing customers in 2021.
The icing on the cake is that as PANW is increasingly relying on subscription-based sales that offer a recurring revenue stream, the gains we’ve seen lately are sure to be sticky and power success beyond just a quarter or two.
6. GoDaddy
In an age when tech behemoths such as Amazon.com seem to get ever wider in their influence, GoDaddy seems almost quaint with its niche focus on domain name registration and website design and hosting services.
But it is a mammoth brand in the space. And it has added a staggering 1 million net new customers this year and counting, on top of its already deep bench of existing website relationships.
In August, GoDaddy surged almost 20% on the month thanks to a confluence of events. A strong quarterly report showed a 12% improvement in earnings and an even more impressive jump of 18% in its business applications line. That was a very important month for GDDY, as it showed the initial wave of domain registration and interest in internet services sparked by the pandemic had continued through the summer months.
GoDaddy was just getting started, it seems. The stock tacked on another 20% surge since the start of November thanks to powerful Q3 earnings. Revenue, total bookings and unlevered cash flow were all up by double digits over the prior year.
While initially seen as a play on the “stay at home” trend, GoDaddy has a wide array of ongoing services to websites that ensure recurring revenue well beyond 2020. That has allowed this tech stock to outperform the S&P 500 handily over the past year, and ensures it has a good chance of doing well again in 2021, to
8. Keysight Technologies
Keysight Technologies isn’t as well-known as some of the other tech stocks on this list. It is, however, a crucial provider of electronic design and testing solutions that are vital to a host of businesses, including those in the aerospace, automotive, energy and technology sectors.
That’s because KEYS offers electronic testing and measurement services that are incredibly precise and ensure quality control on things like engine parts or semiconductor chips that don’t have much margin for error.
The growth story speaks for itself, with revenue set to surge more than 10% this fiscal year if projections hold, and EPS projected to jump 15%. .
Perhaps most importantly, however, KEYS has about $1.8 billion in cash on the books even after that deal. That’s a massive war chest for future growth plans as well as fallback cash if things get rough in the short-term.
It’s also worth noting that the tech firm just exhausted a $500 million share buyback plan this year, so shareholders might expect an even bigger repurchase plan on the horizon to further drive appreciation on top of organic growth trends.