[Briefing.com] Comp-Software Reviewed Feb 02 Upgraded to *** Market Performer
Comment: We last reviewed the software sector on December 8, and we left the rating unchanged at Slightly Underperform (two stars). Since then it has been a tale of two markets. December saw massive rotation out of techs, and the software stocks took much of the brunt. The Goldman Sachs Software Index fell 33% from December 8 to January 2. The next day everything changed. When the Fed gave the market a surprise late Christmas gift in the form of an inter-meeting 50 bp rate cut on January 3, the GS Index recovered about half of that lost ground and has held an upward bias since. The heavyweights have lead the move, and the heaviest, Microsoft, is up over 40% YTD as the company heads into the appeals process of the DoJ battle. The mainframe software companies made a long overdue upward move on the back of strong Q4 earnings aided by IBM's new mainframe rollout. Surprisingly, the database and e-business management software players have underperformed the Nasdaq YTD. We say surprisingly because not only was the sector one of the most punished in 4Q00, but a recent Morgan Stanley CIO survey shows that database spending will be the number one priority in terms of IT budget allocation this year. Although Q4 results and preliminary indications from Q1 were nothing to get excited about, the market seems to be looking forward to the second half and buying former tech favorites in anticipation of a recovery in IT spending. The FOMC's 100 bp rate cut in January coupled with President Bush's aggressive promotion of a tax cut bodes well for capital investment, IT spending and specifically the software sector. However, we're not out of the woods yet, despite the run that many of the stocks have enjoyed. That leaves the door open for some profit taking in the near-term. Nevertheless, the outlook has significantly improved since early December, we raise our rating on the sector from Slightly Underperform (two stars) to Market Perform (three stars).
Stocks: Acclaim Entertainment (AKLM), Adobe Systems (ADBE), Autodesk (ADSK), BMC Software (BMCS), BroadVision (BVSN), Calico Commerce (CLIC), Computer Associates (CA), CompuWare (CPWR), Computer Sciences (CSC), Concord Communications (CCRD), EDS (EDS), Electronic Arts (ERTS), i2 Technologies (ITWO), Informix (IFMX), Inprise (INPR), Intuit (INTU), JD Edwards (JDEC), Keane (KEA), Legato Systems (LGTO), Macromedia (MACR), Microsoft (MSFT), Net Perceptions (NETP), Network Associates (NETA), Novell (NOVL), Oracle (ORCL), Parametric Technologies (PMTC), PeopleSoft (PSFT), Remedy (RMDY), Sterling Commerce (SE), Sybase (SYBS), Symantec (SYMC), Unisys (UIS), Vignette (VIGN). |
