Da Davidson: Software Fundamentals Strong Heading Into 2015 But Don't Rush To Invest

Jack Andrews of DA Davidson previewed the Software industry's outlook for 2015, noting that fundamentals remain strong although it is unclear if the outlook will be enough to boost Software stock prices in the near-term. “We caution that in early 2015 software stock performance may be muted, especially as it follows a strong finish to 2014,” Andrews wrote. “To be specific, from October 16th through year end, the median price change of the SaaS application stocks that we track increased 10.8 percent. Moreover, our research demonstrates that software stocks tend to have a seasonal component to their average annual stock performance.” Andrews adds that Software stocks tend to outperform in the Fall and early Winter only to under-perform in the following Spring through mid-Summer. As such, the analyst cautions investors that the historically weaker period is indeed approaching yet again. Andrews also notes that recent strength seen in the U.S. dollar is “largely understood” by investors thus far and that investors should remain “wary” during the upcoming fourth quarter earnings reporting cycle as companies may release 2015 guidance which may trend downards. Bottom line, Software companies aren't facing any significant macro or business related issues, domestically or internationally, according to Andrews. The challenge to the group includes the fact that many companies are have nothing new or particularly incremental coming to drive share prices higher. As such, “investors who have Software exposure are happy with what they own, and those who do not currently have exposure are in no hurry to ramp up.”