Hot software stocks Salesforce (CRM), ServiceNow (NOW), Workday (WDAY), Pegasystems (PEGA) and Okta (OKTA) are setting up near buy points as recent volatility in the Nasdaq composite and S&P 500 index created base-building opportunities for this high-flying group.
Strong Software Stocks
Salesforce and ServiceNow earn the highest-possible IBD Composite Rating of 99, while Workday has a 98. Pegasystems has a 92, while 2017 IPO Okta, which has yet to turn a profit, lags with a 78. The Composite Rating measures stocks based on a variety of fundamental and technical factors. All-time stock winners often have a Composite Rating of at least 95 near the start of their run.
Industry Group Rankings
Salesforce, ServiceNow and Workday are members of the Computer Software-Enterprise industry group, currently ranked No. 2 out of 197 groups tracked by IBD. That ranking has improved from No. 7 six weeks ago. Top stocks typically come from the top quartile of IBD’s groups.
Relative Strength
If and when these software stocks break out, look for their relative strength lines to hit new highs. The relative strength line measures price performance vs. the S&P 500, so a new high for the line would be bullish. But continued strong price action could potentially be a challenge if distribution, or institutional selling, in the stock market continues.
Salesforce
Enterprise software leader Salesforce closed Friday at 122.82, working on a flat base buy point of 128.97. The stock has provided plenty of buying opportunities, with this being its fourth flat base in less than 12 months. Shares have risen 89% during that time and have found support around the 50-day line along the run.
ServiceNow
ServiceNow is working on a flat base with a 176.66 buy point ahead of its quarterly results on Wednesday. Shares closed Friday at 168.90.
Workday
After retaking the 50-day line with conviction on April 17, Workday is trading 7% below a 140.10 buy point. For investors already holding the software stock, adding shares on the rebound from the 50-day could be sensible.
Pegasystems
Pegasystems has been consolidating since last June. The software stock is now trading less than 4% below a 64.10 buy point within the larger consolidation. Pegasystems is in the No. 48-ranked Computer Software-Financial group, up from No. 51 six weeks ago.
Okta
Okta’s No. 11-ranked Computer Software-Security group gets the award for “most improved,” having strengthened from the No. 25-ranked group just six weeks back. Okta is closing in on a 42.98 buy point, rising 3.4% last week to 41.97. The April 2017 IPO’s RS line is hitting a new high before the stock price, which is especially bullish.