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01/04/2010

Top 10 Best and Worst Software Stocks of 2009

In 2009 Software Sector was up +49.0% vs. the NASDAQ's +43.9% gain and the S&P 500's +23.5% gain.  This is a big improvement from 2008 when the sector was down 40.9%. The average software stock gained +91.1% indicating that small cap companies, particularly microcap companies performed very strongly.  In fact, the average gain for software stocks that started the year with less than $100M in market cap (over 1/4 of the total) was 129.6%.

Despite this year’s massive really, the Software sector is still down -11.9% compared to year-end 2007, but it has performed better than the overall market, as the S&P 500 remains down -24.1% vs. year end 2007.


2009 Top 10 Best Performing Software Stocks
As with this year's Top 10 Internet Stocks, the biggest thing that the Top 10 Software Stocks have in common is that they did relatively poorly in 2008..  The average Top 10 software stock this year was off -52.2% in 2008 vs. the sector’s -40.9% decline. To be included on this year's list, a stock had to start the year with at least a $20M market cap.  Here are the Top 10 Software Stock performers:

  1. Sonic Solutions
    Price Change: 570% Ticker: SNIC
    Comment
    :  Who says packaged software isn't sexy?  The maker of Roxio and other branded digital media software soared in 2009 after being down -83.1% in 2008.
  2. SourceFire
    Price Change: 376% Ticker:FIRE
    Comment
    :  Network security vendors did well in 2009, but none did better than FIRE.
  3. Incredimail
    Price Change
    : 328% Ticker: MAIL
    Comment:  Incredimail shifted it's business model from software licensing to search affiliate to the point where it should be probably be shifted to the Internet sector.
  4. Wave Systems
    Price Change
    : 284% Ticker:WAVX
    Comment:  This security software provider finally started to see real revenue traction in its core TPM software product thanks to several OEM deals.
  5. LivePerson
    Price Change: 283% Ticker: LPSN
    Comment
    : Liveperson's SaaS based customer interaction service saw continued adoption and renewed growth.
  6. Click Software
    Price Change
    : 278% Ticker: CKSW
    Comment
    : Click Software won several large deals in its core market of "truck roll" scheduling proving that vertically oriented on-premise apps still have some legs.
  7. OpenWave
    Price Change: 251% Ticker: OPWV
    Comment
    : After declining from $500+/share in 2000 all the way to $0.48 in 2008, this pioneer of mobile browsing and e-mail software finally gained a little positive momentum in 2009.
  8. Blue Coat Systems
    Price Change
    : 240% Ticker: EGHT
    Comment
    :  Blue Coat saw increased demand for it's proxy and firewall servers in a generally strong environment for security software.
  9. Amicas
    Price Change
    : 226% Ticker: AMCS
    Comment
    : This manager of clinical radiology and other medical data sneaked into the Top 10 thanks to year end buyout deal with Thomas Bravo.
  10. ModusLink
    Price Change
    : 226% Ticker: MDLK
    Comment
    : Remember CMGI from the .com era?  They still exist, only now with a focus on supply chain management and sourcing.  MDLK bounced nicely in 2009 as fears of its demise proved over done.


2009 Top 10 Worst Performing Software Stocks

It's not easy to go down when everything else is going up, but these 10 stocks prove that it's possible.   A couple trends really stand out though:

  1. Safe stocks aren't necessarily safe.  As a group, these stocks were down only 16% in 2008 vs. the software sector's 40% decline, with 3 of these stocks actually in last year's group of Top 10 Best Performers.  Turns out these stocks weren't so safe after all.
  2. Financial services software firms saw the impact of 2008 in 2009.  While many banks and insurers saw improved financial performance in 2009, their software suppliers weren't so lucky as capital spending from these banks has yet to bounce back.

To be included on this year's list, a stock had to start the year with at least a $20M market cap.  Here are the Top 10 Worst Software Stock performers:

  1. Purple Communications
    Price Change: -93% Ticker: PRPL
    Comment
    :  Purple provides software and services to the deaf and hearing impaired.  Turns out they were a little "tone deaf" to certain FCC regulations and are now under active investigation.  That investigation plus a mountain of debt was enough to make PRPL our worst software stock of 2009.
  2. Selectica
    Price Change: -84% Ticker:SLTC
    Comment
    :  Some may recall this "configurator" software from the boom days when its market cap surpassed $5 billion.   Long way from $5BN now.
  3. Jacada
    Price Change
    : -51%% Ticker: JCDA
    Comment:  This CRM provider saw its business continue to decline as big wins in one of its largest verticasl, financial services, dried up.
  4. VASCO Data Security
    Price Change
    : -39% Ticker:VDSI
    Comment:  This provider of security "tokens" to large banks saw its business languish in 2009 despite improvements at its customers.
  5. Konami
    Price Change: -30% Ticker: KNM
    Comment
    : Video games is a "hits business" and Konami could use a few hits.
  6. Sapiens
    Price Change
    : -28% Ticker: SPNS
    Comment
    : In a reversal of fortunes, last year's #1 performer is this year's 7th worst performer as providing software to insurers proved to be a little less cycle resistant than the market believed. 
  7. Cogent
    Price Change
    : -23% Ticker: COGT
    Comment
    : Last year's fourth best performer, also saw a big reversal in fortunes as this provider of fingerprint recognition systems to the government apparently didn't get as much of the stimulus money as investors anticipated it would.
  8. Phoenix Technology
    Price Change
    : -21% Ticker: PTEC
    Comment
    :  The #1 provider of BIOS software struggled to reinvent itself and amidst soft PC demand.
  9. S1 Corp
    Price Change
    : -17% Ticker: SONE
    Comment
    : Yet another Top 10 performer from 2008, this provider of online banking software saw its business suffer as its banking customers licked their wounds.
  10. EPIQ Systems
    Price Change
    : -16% Ticker: EPIQ
    Comment
    : If you had told me at the beginning of 2009 that a company focused on providing software and services to the bankruptcy industry would be one of the year's worst performers in 2009 I would have laughed, but that's exactly what happened.  EPIQ was only down 4% in 2008 as investors clearly anticipated that 2009 would be a banner year.  I guess it wasn't banner enough.

Note: This is not a recommendation to buy or sell these stocks or anything else.  It is not investment advice, it is just an objective list of past stock performance.  Please see my disclaimer at the bottom of this post.

January 4, 2010 | Permalink

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