Despite the erratic performance of software stocks lately, the industry is expected to remain a key area of interest for investors in the coming months given the crucial role software is playing in this new era of remote lifestyles. Because increasing IT spending is expected to drive demand for software, we think low-priced software stocks Progress Software (NASDAQ:PRGS) (PGRS), NetSol Technologies (NTWK), and Evolving Systems (EVOL) are well positioned to gain significantly in the near term. So, let’s take a closer look at these names.The software industry played a leading role in powering the stock market’s gains last year. But now, traders and investors are unnerved by indications of higher inflation and are moving away from expensive software stocks in fear of losses in the near term. The opportunity to capitalize on the economic recovery by betting on cheap cyclical stocks is another reason why software stocks have been retreating lately. This is evidenced by the Invesco Dynamic Software ETF’s (PSJ) 5.7%% loss over the past three months, compared to S&P 500’s (SPY) 10.2% gains.
Because most aspects of people’s lives and organizations' operations are now being digitized, the demand for software should continue to increase. With more organizations adopting cloud applications and products that could help their employees collaborate from afar and access data that are stored in remote data centers, there will likely be a substantial rise in IT spending going forward. Indeed, the global enterprise software market is expected to grow at an 8% CAGR to reach $634 billion by the end of 2023.
This bodes well for software stocks that are trading at reasonable prices now. Based on strong financials, we think Progress Software Corporation (PRGS), NetSol Technologies, Inc. (NTWK), and Evolving Systems, Inc. (EVOL) are primed to deliver handsome returns.