Internet stocks are benefiting from continued demand for digital transformation services. Internet is ubiquitous in this digital era and the companies are leveraging it to deliver innovative services. Rising Internet penetration in emerging markets, including Latin America, Africa and South East Asia, presents significant business opportunities.
The optimism surrounding Internet stocks reflects in the robust year-to-date performance. Notably, the Invesco NASDAQ Internet ETF (PNQI) and First Trust Dow Jones Internet ETF (FDN) rallied 20.6% and 16.2%, respectively, on a year-to-date basis compared with the S&P 500’s growth of 14.8%.
Internet Software Stocks Rallying
Internet software providers are gaining from robust demand for their services as enterprises continue to shift from on-premise to cloud environments, both public and hybrid.
This is also the primary reason behind utilization of SaaS-based (or Software as a Service) applications coming mainstream. Demand for cloud infrastructure monitoring, web-based application performance management, human capital management (HCM), and cyber security software has also been on the rise.
Moreover, secular growth in the e-commerce space, increasing popularity of social-media platforms and digital ad-spending are major growth drivers. Increasing popularity of programmatic ad-buying is a key catalyst, in this regard. Per eMarketer, U.S. advertisers will incur approximately $60 billion in relation to programmatic display made in 2019. The tally is expected to hit $81 billion by 2021.
Further, growing allegiance to online gaming, music, payment portals, education and video streaming services amid increasing use of smartphones enhances growth opportunities for Internet software companies.
Notably, the stocks in the Zacks Internet Software Industry have collectively gained 31% year to date.
The Zacks Internet Software Industry carries a Zacks Industry Rank #95 that places it at the top 37% of more than 250 Zacks industries.
Making the Right Choice
The immense prospects of the Internet software industry make it difficult to pick the right stock. It is here that the Growth Style Score comes in handy. Our Growth Style Score condenses all the essential metrics from the company’s financial statements to achieve a true sense of quality and sustainability of its growth.
Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) when combined with Growth Score of A or B offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
6 Growth Picks
We have zeroed in on six Internet software stocks that have the favorable combination. Each of the stocks has outperformed the S&P 500 year to date.
Year-to-Date Price Performance
Digital Turbine APPS has been exhibiting impressive performance thanks to increasing advertiser demand and incremental adoption of innovative offerings, including SingleTap, Notifications and Folders.
This Zacks Rank #1 stock has a Growth Score of A.
The Zacks Consensus Estimate for fiscal 2020 earnings has been revised 42.9% upward in the past 30 days to 20 cents.
Chegg CHGG is well poised to capitalize on the rising popularity of online and on-demand human help for different courses at high school and college levels.
Chegg has a Zacks Rank #1 and a Growth Score of B.
Current year earnings estimate has been revised 62.5% upward in the past 60 days to 78 cents.
Paylocity PCTY is benefiting from the higher uptake of its HCM products among clients with below 50 employees.
This Zacks Rank #1 stock has a Growth Score of B.
The consensus for fiscal 2020 earnings has been steady in the past 60 days at $1.68.
Model N MODN is riding on rapid adoption of its Revenue Cloud offering for med-tech, pharma, semiconductor, manufacturing and high-tech companies.
This Zacks Rank #2 stock has a Growth Score of A.
The Zacks Consensus Estimate for fiscal 2019 earnings has been revised 28.6% upward in the past 30 days to 18 cents.
PayPal PYPL is expected to bolster total active accounts on the back of Venmo’s improving monetization efforts and rising adoption rate across various platforms.
PayPal has a Zacks Rank #2 and a Growth Score of B.
Current year earnings estimate has been revised 4.7% upward in the past 60 days to $3.13.
NIC EGOV is benefiting from growing clout of digital government services aimed at enabling governments leverage the Internet to reduce costs and offer advanced services to businesses and citizens.
This Zacks Rank #2 stock has a Growth Score of B.
Current year earnings estimate has been revised 2.7% upward in the past 30 days to 75 cents.
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PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
Model N, Inc. (MODN) : Free Stock Analysis Report
Chegg, Inc. (CHGG) : Free Stock Analysis Report
Digital Turbine, Inc. (APPS) : Free Stock Analysis Report
NIC Inc. (EGOV) : Free Stock Analysis Report
Paylocity Holding Corporation (PCTY) : Free Stock Analysis Report
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