Internet Growth Makes Software Firms ‘Buys’
Bad news for Microsoft Corp. (MSFT) isn’t necessarily bad for other software makers, according to Lehman Bros. analyst Neil Herman.
In fact, growth in the Internet may help little-known companies such as Micromuse Inc. (MUSE) recoup some of their stock losses in recent weeks, he said Tuesday.
Micromuse, Mercury Interactive Corp. (MERQ) and Advent Software Inc. (ADVS) are among several “buys” in the group, he said, even though Microsoft, the world’s No. 1 software maker, has warned that sales growth is slowing and will lag this year as businesses slow personal computer purchases.
“Corporate information technology spending is being driven by the Web, not PCs,” Herman said in a note to clients.
Companies are realizing they must interact on a real-time basis with customers, suppliers and partners, Herman said. Executives, concerned their corporations will be left behind as more business is done on the Web, are spending more on Internet-related applications, possibly at the expense of PC spending.
“Weak corporate PC demand could be related directly to organizations’ preoccupation with Web-based applications and solutions, which would suggest that the Internet software sector remains extremely healthy,” he said.
Shares of Mercury Interactive, which sells testing software, rose 15% on Tuesday, and Micromuse, whose software monitors Internet traffic routers, got a 4% lift.
Advent, which makes software to automate securities-trading orders, “is positioning itself at the center of the Web economy as an information exchange,” Herman said. The stock rose 2%.
He said Oracle Corp. (ORCL) is “clearly much earlier to market than many others with its customer-relationship management and electronic procurement products, which appear to be finding quick acceptance.” Oracle, which has taken less of a drubbing than many stocks in the group, rose 4%.
Herman also cited BMC Software Inc. (BMCS), whose products speed up corporate databases. On Tuesday, the company reported better-than-expected quarterly earnings as well as a stock buyback program, and the stock rose 8%.
Herman’s other software picks include Saga Systems Inc. (AGS), which rose 1% Tuesday, and Mercator Software Inc. (MCTR), which fell 8% despite Herman’s tout.
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The Hard Sell on Software
Lehman Bros. analyst Neil Herman said Tuesday that several software stocks could be good buys at current prices. His picks:
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Decline Est. from 3-5-year Ticker Tues. 52-week EPS Company symbol close high growth Mercator Software MCTR $37.13 -75.2% +40.0% Micromuse MUSE 84.13 -59.2 +49.6 Saga Systems AGS 18.06 -54.4 +22.5 BMC Software BMCS 40.81 -52.9 +27.2 Mercury Interactive MERQ 75.44 -43.9 +38.9 Advent Software ADVS 50.98 -22.5 +33.3 Oracle ORCL 75.56 -16.0 +25.5 S&P; 500 SPX 1,477.14 -4.9 +15.2
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EPS=earnings per share
Source: Bloomberg News
