There’s a buying opportunity now for these 7 stocks.
As economic data from last month rolls in, it’s becoming increasingly clear that the U.S. has fallen into a deep recession triggered by the coronavirus crisis.
“The economy is clearly in ruins here,” said Chris Rupkey, chief financial economist at MUFG Union Bank in reaction to today’s retail figures from last month.
U.S. retail sales tumbled the most on record in March, falling 8.7% with clothing stores seeing the largest decline at 50.5%.
Alongside that figure today, factory output dropped last month by the most since 1946 as the wave of shutdowns to stem the spread of the coronavirus severely crippled the manufacturing sector, with New York’s manufacturing index falling by its biggest margin ever to -78.2.
“This was just one month,” Rupkey said. “Consumers are hunkering down at home, only venturing out to go to the grocery store. It’s lights out today, and as far as we can tell, it’s going to be worse next month.”
With the broader economy grinding to a halt, the enterprise software sector is likely headed for a tough couple of quarters as companies reign in spending amid the pandemic.
Even so, Morgan Stanley software analyst Keith Weiss said in a report this week that there are a few stocks in the sector investors can hide out in as the storm rages on.
“Our survey work, channel conversations and macro data all point to a very difficult software spending period over the next several months,” Weiss and his team wrote in the report. “However, as the impacts and duration of those impacts become clearer, investor focus likely turns to the longer-term, where software’s broader positioning is actually strengthened. By and large, we are looking at the recent pullbacks as an opportunity to build positions in the stronger franchises in software.”
According to Weiss, there’s strong secular growth trends in the software sector, and he sees a particular focus on recurring revenue models as well as benefits for the group from the aggressive fiscal and monetary steps to provide relief to the economy amid the coronavirus crisis.
“While investors are likely to see additional volatility in the near-term, over a longer time horizon this will prove an attractive entry point,” Weiss said in the report, adding that current conditions should act as catalysts for key trends, including a shift to the public cloud, rising workflow automation, and improved worker productivity.
Among Weiss’ top picks are Workday (NASDAQ: WDAY), and Coupa Software (NASDAQ: COUP), both of which have seen big gains over the past week rising 10.8% and 21%, respectively.
Despite this gain, however, Workday shares are down roughly -28% since their February high, while Coupa shares are down nearly 11% since their record high on February 20.
Weiss lifted both stocks to Overweight from Equal Weight in the report.
On Workday, Weiss said he believes the company will be a long-term winner in the adoption of software-as-a-service as the company gains market share in both the HR and financial fields. And given that the stock has fallen around -28% since its February high, Weiss sees a good buying opportunity for the stock “with an asymmetrical risk/reward at current levels.”
Weiss issued a price target of $170 for Workday, indicating 16% upside from the current price.
As for Coupa, Weiss boosted his price target on the stock to $182 – nearly 15% higher than the price as of this writing.
“With COUP shares down ~25% from their annual highs, we see an opportunity to get on board,” Weiss wrote, adding that Coupa will be one of the “leading secular beneficiaries” in the rise of software-as-a-service.
Other names on Weiss upgraded to Overweight include Adobe (NASDAQ: ADBE), Atlassian (NASDAQ: TEAM), Microsoft (NASDAQ: MSFT), Salesforce (NYSE: CRM), and Veeva Systems (NYSE: VEEV).
Wedbush analyst Dan Ives is also bullish on Microsoft shares, reiterating his Overweight rating on the stock this week and price target of $210 – 22% higher than the current price.
“Microsoft remains the Rock of Gibraltar cloud stock to own in our view,” Ives wrote in a note to clients., adding that most of Microsoft’s valuation is now tied to its cloud-computing offerings, including its Azure cloud infrastructure and Office 365 productivity software.
“We believe this coronavirus pandemic is a key turning point/catalyst in the technology world around deploying cloud-driven/remote-learning environments,” Ives said in the note. “Our long-standing projections of moving from 33% of workloads in the cloud to 55% by 2022 now look conservative as these targets could be reached a full year ahead of expectations given this pace.”