In this article we will take a look at the 10 Best SaaS stocks to buy and hold for long-term profits.
Software-as-a-Service, or SaaS, companies have been seeing an exponential rise in interest from investors over the last several years, thanks to their attractive products, explosive growth and promising returns. Earlier this year, data from Kroll Bond Rating Agency Inc. and S&P Global Market Intelligence showed that big lenders are pouring billions into software companies for long-term returns. The report said that nonbank lenders like Golub Capital, AllianceBernstein Holdings LP and Owl Rock Capital Partners LP have issued asset-backed bonds to finance a whopping $2 billion of loans to certain software companies since November 2020.
Top SaaS companies usually have limited operating costs and have users in the millions. According to a report by BCC Research, the global SaaS Market for business applications is expected to reach $94.9 million by 2022 from $44.4 billion in 2017, growing at a CAGR of 16.4% from 2017 to 2022.
The markets are also experiencing a huge influx of SaaS IPOs, especially after the pandemic. In 2021, notable SaaS IPOs include collaboration software-as-a-service (SaaS) vendor monday.com Ltd. (NASDAQ: MNDY), WalkMe Ltd. (NASDAQ: WKME), Qualtrics International Inc. (NASDAQ: XM), Coupang, Inc. (NYSE: CPNG), DigitalOcean Holdings, Inc. (NYSE: DOCN) and AppLovin Corporation (NASDAQ: APP).
Companies like Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Palantir Technologies Inc. (NYSE: PLTR), Microsoft Corporation (NASDAQ: MSFT) and Salesforce.com, inc. (NYSE: CRM) are posting spectacular growth, especially after the pandemic, benefiting from trends like work from home, ecommerce, cybersecurity attacks, increasing consumption of entertainment and gaming content.
Baffling growth of SaaS companies have also surprised the smart money, which has now started piling into these stocks. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
In this article we chose some of the best SaaS companies that have a long-term growth potential. These SaaS companies are working on products that will see a growing interest in their products from various segments.
Photo by Austin Distel on Unsplash
With this context and industry outlook in mind, let’s start our list of the 10 best SaaS stocks to buy and hold for long-term profits.
Best SaaS Stocks to Buy and Hold for Long-Term Profits
10. Splunk Inc. (NASDAQ: SPLK)
Number of Hedge Fund Holders: 41
Splunk Inc. (NASDAQ: SPLK) is a San Francisco-based company that offers Cloud-based solutions for cybersecurity, DevOps, data analytics and more. Recently, Summit Insights upgraded Splunk Inc. (NASDAQ: SPLK) to Buy from Hold with a price target of $160. The firm’s analyst Srini Nandury said that “patient investors” will benefit from buying this stock at the current levels. Splunk Inc. (NASDAQ: SPLK) fell after its first quarter report amid weak financials. However, the company’s products have a huge long-term growth potential. That’s why it ranks 10th in our list of the best SaaS stocks to buy and hold for long-term profits.
As of the end of the first quarter, 41 hedge funds in Insider Monkey’s database of 800+ funds held stakes in Splunk Inc. (NASDAQ: SPLK), compared to 47 funds in the fourth quarter. Jim Simons’ Renaissance Technologies is the biggest stakeholder in the company, with 1.4 million shares, worth $192.3 million.
Like Zendesk, Inc. (NYSE: ZEN), Salesforce.com, inc. (NYSE: CRM), Smartsheet Inc. (NYSE: SMAR), Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Palantir Technologies Inc. (NYSE: PLTR), Microsoft Corporation (NASDAQ: MSFT) and Salesforce.com, inc. (NYSE: CRM), Splunk Inc. (NASDAQ: SPLK) is one of the best tech and Cloud stocks to buy now.
ClearBridge Investments, in its Q1 2021 investor letter, mentioned Splunk Inc. (NASDAQ: SPLK). Here is what the fund said:
“In addition to the new issue market, we have been tactically adding growth exposure. To make room for these new names with more attractive outlooks related to the reopening, we sold out of companies where the thesis is not playing out at the pace we expected including Splunk.”
9. Smartsheet Inc. (NYSE: SMAR)
Number of Hedge Fund Holders: 39
Smartsheet Inc. (NYSE: SMAR) is a Cloud-based project management software company that offers a variety of solutions for small and large companies to manage their workflows, including collaboration tools, workflow automation, chat software integrations, service requests handling, content management and much more.
Smartsheet Inc. (NYSE: SMAR) stock is getting a lot of attention lately. It’s up 18% in the past 30 days. In the first quarter, Smartsheet Inc. (NYSE: SMAR)’s revenue jumped 37% year over year to reach $117.08 million. Adjusted loss per share came in at $0.09, beating the estimates by $0.05. Subscription revenue jumped 40% in the period.
Like Palantir Technologies Inc. (NYSE: PLTR), Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT), Splunk Inc. (NASDAQ: SPLK) and Salesforce.com, inc. (NYSE: CRM), Smartsheet Inc. (NYSE: SMAR) is one of the best tech and Cloud stocks to buy now.
Increasing demand of efficient collaboration software amid a rise in remote work trends is boosting Smartsheet Inc. (NYSE: SMAR)’s financials. That’s why it ranks 9th in our list of the best SaaS stocks to buy and hold for long-term profits.
Whale Rock Capital Management currently owns 3.6 million shares of SMAR, worth $229.1 million. SMAR occupies 1.88% of Whale Rock’s overall equity.
8. Salesforce.com, inc. (NYSE: CRM)
Number of Hedge Fund Holders: 91
Salesforce.com, inc. (NYSE: CRM) is a large-cap name in the top SaaS stocks list but the stock still has a plenty of room to run because of its strong product offerings that continue to gain popularity in a variety of segments in the market. Salesforce.com, inc. (NYSE: CRM) posted a spectacular first quarter recently and gave a strong guidance for the second quarter. Monness Crespi & Hardt upped its price target for the Cloud-based customer relationship management software company stock to $290 from $275. The stock ranks 8th in our list of the best SaaS stocks to buy and hold for long-term profits.
Morgan Stanley, which has an Overweight rating on Salesforce.com, inc. (NYSE: CRM) stock with a $285 price target, praised the company’s strong results. Salesforce has gained 34% in the last 12 months.
According to our database, the number of Salesforce.com, inc. (NYSE: CRM)’s long hedge funds positions decreased at the end of the first quarter of 2021. There were 91 hedge funds that hold a position in salesforce compared to 97 funds in the fourth quarter. The biggest stakeholder of the company is Ken Fisher’s Fisher Asset Management, with 12.95 million shares, worth $2.7 billion.
Like Palantir Technologies Inc. (NYSE: PLTR), Smartsheet Inc. (NYSE: SMAR), Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT) and Splunk Inc. (NASDAQ: SPLK), Salesforce.com, inc. (NYSE: CRM) is one of the best tech and Cloud stocks to buy now.
ClearBridge Investments, in its Q1 2021 investor letter, mentioned salesforce.com, inc. (NYSE: CRM). Here is what ClearBridge Investments has to say about salesforce.com, inc. in its letter:
“We added to our software-as-a-service (SaaS) exposure with the initiation of SaaS leader salesforce.com, which develops software for customer relationship management (we added Workday, which enterprise resource planning applications, last quarter). Saleforce.com is well-positioned in the most attractive end markets in software and will benefit from secular drivers such as remote work and the digital transformation. Salesforce.com is a sustainability leader as well, with a commitment to carbon-neutral cloud, toward which it has set a goal of 100% renewable energy for global operations by fiscal year 2022. The company has a strong focus on equality, in terms of equal rights, pay, education and opportunity. As a data company it has been leading on workforce disclosures and seeks to have 50% of its U.S. workforce made up of underrepresented groups by 2024.”
7. Zendesk, Inc. (NYSE: ZEN)
Number of Hedge Fund Holders: 45
Zendesk, Inc. (NYSE: ZEN) is operating in a domain that has a huge long-term growth potential: customer service. As millions of businesses embrace digital transformation worldwide, they will be needing efficient customer support solutions to keep their customers happy. Zendesk, Inc. (NYSE: ZEN) shares have gained 72% over the past year as the company continues to see a strong demand of its products. The stock ranks 7th in our list of the best SaaS stocks to buy and hold for long-term profits.
Recently, Cowen, which has an Outperform rating for the stock, increased its price target for Zendesk, Inc. (NYSE: ZEN) to $195 from $185 on the back of the company’s strong quarterly results.
Piper Sandler also increased its price target for Zendesk, Inc. (NYSE: ZEN) to $186 from $180. The firm sees “encouraging signs” of a recovery in the enterprise software space.
Cadian Capital currently holds 1.4 million shares of Zendesk that amounts $188.8million. ZEN occupies 6.98% of Cadian Capital’s total portfolio.
Like Palantir Technologies Inc. (NYSE: PLTR), Salesforce.com, inc. (NYSE: CRM), Smartsheet Inc. (NYSE: SMAR), Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT), Splunk Inc. (NASDAQ: SPLK) and Salesforce.com, inc. (NYSE: CRM), Zendesk, Inc. (NYSE: ZEN) is one of the best tech and Cloud stocks to buy now.
In its Q4 2020 investor letter, Wasatch Ultra Growth Fund highlighted a few stocks and Zendesk Inc. (NYSE:ZEN) is one of them. Here is what Wasatch said:
“Zendesk, Inc. (ZEN) was also a top contributor. The company provides business software using the software-as-a-service (SaaS) model. Zendesk has experienced strong demand throughout the Covid19 pandemic from customers in e-commerce, as well as from other businesses with employees working from home. Additionally, demand from clients in the travel and hospitality industries has picked up as global economies have begun to reopen. Adjusted earnings per share rose 42% in the company’s most recent quarter on revenue growth of 24% compared to the same quarter a year ago. An improved sales outlook from Zendesk’s management also helped lift the stock.”
6. Coupa Software Incorporated (NASDAQ: COUP)
Number of Hedge Fund Holders: 50
Coupa Software Incorporated (NASDAQ: COUP)’s SaaS solutions help businesses manage their expenses, supply chains, process automation, taxes, contracts and much more. In the first quarter of 2021, Coupa Software Incorporated (NASDAQ: COUP)’s revenue jumped 40% year over year to $166.93 million. EPS in the period came in at $0.07, crushing past the Street’s estimate of a loss of 19 cents per share. Subscription revenue also jumped 33% in the period. Adjusted gross margin came in at $68.8% versus the consensus estimate of 65.6%. For the second quarter, Coupa Software Incorporated (NASDAQ: COUP)’s revenue guidance was above the Street’s consensus. The stock ranks 6th in our list of the best SaaS stocks to buy and hold for long-term profits.
Despite all of this, the stock fell after the earnings report. This represents an attractive entry point as we believe Coupa Software Incorporated (NASDAQ: COUP) is one of the best SaaS stocks to buy and hold for long-term profits.
As of the end of the first quarter of 2021, Stephen Mandel’s Lone Pine Capital owns 4.2 million shares of COUP worth $1.06 billion. COUP accounts for 3.83% of Lone Pine’s total portfolio.
Like Palantir Technologies Inc. (NYSE: PLTR), Zendesk, Inc. (NYSE: ZEN), Salesforce.com, inc. (NYSE: CRM), Smartsheet Inc. (NYSE: SMAR), Shopify Inc (NYSE: SHOP), Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT), Splunk Inc. (NASDAQ: SPLK) and Salesforce.com, inc. (NYSE: CRM), Coupa Software Incorporated (NASDAQ: COUP) is one of the best tech and Cloud stocks to buy now.
Artisan Mid Cap Fund, in their Q4 2020 investor letter, mentioned Coupa Software Incorporated (NASDAQ: COUP). Here is what the fund said:
“We started new investment campaigns in Coupa Software. Coupa is a leading provider of cloud-based business spend-management software. The company helps 1,400 customers process over $2 trillion in annual spend across more than 5 million suppliers. While this quarter’s announcement of a major new customer win at Walmart shows it still has a long runway for growth in this business, we are particularly excited about Coupa Pay—a recently introduced set of cloud services that seeks to process B2B payments (not just invoices) across its large network. B2B payments has seen far less innovation in recent years compared to B2C (PayPal, Venmo, Square), but we see it as a major opportunity in the years ahead.”
Best SaaS Stocks to Buy
5. Zscaler, Inc. (NASDAQ: ZS)
Number of Hedge Fund Holders: 34
Zscaler, Inc. (NASDAQ: ZS) makes it to the list of the best SaaS stocks to buy for long-term profits because the company’s Cloud products offer internet security and authentication solutions that are seeing a huge demand in the world amid increasing cybersecurity threats. Zscaler, Inc. (NASDAQ: ZS) products like ZIA, ZCP, Zero Trust Exchange and SSL security services are also in demand because of remote work trends, as companies are investing to secure their online assets while enabling their employees to work from anywhere.
Wedbush Securities analyst Dan Ives, who recently said in a report that close to 70% of workloads will be in the Cloud by 2025, added Zcaler to his favorite cybersecurity stocks list.
Zscaler, Inc. (NASDAQ: ZS) is also getting the attention of the smart money, as 34 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the first quarter, down from 35 funds a quarter earlier.
Artisan Small Cap Fund, in their Q4 2020 investor letter, mentioned Zscaler, Inc. (NASDAQ: ZS). Here is what the fund said:
“We also exited our investment in Zscaler. Zscaler provides cloudbased Internet security solutions. Cybersecurity remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Furthermore, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a remote workforce make operating IT infrastructures increasingly complex. Zscaler’s scalable, cloud-based security platform is a more secure and efficient way to connect users and applications, which eliminates the need for several layers of security (firewalls, VPNs, etc.) developed and built over the last couple of decades. While the pandemic crisis is likely disrupting some areas of Zscaler’s new sales funnel, the company is particularly well-suited to scale and accelerate our market share-gain thesis. Ninety percent of employees are remotely connecting to the enterprise IT network in today’s inverted world, as opposed to prior solutions which are geared to support 10%-20% of workers connecting remotely with the rest connecting from within the walls of a corporate network. Many employees have used traditional VPN connections to log into their networks remotely, but Zscaler’s platform offers a more secure connection without exposing an entire internal network, is easier to configure and is less costly to operate at scale. While the trend toward connecting remote devices over the Internet backbone remains firmly in motion, the stock appreciated over 300% in 2020, quickly outgrowing our small-cap market cap mandate, and we ended our successful campaign.”
4. BigCommerce Holdings, Inc. (NASDAQ: BIGC)
Number of Hedge Fund Holders: 26
BigCommerce Holdings, Inc. (NASDAQ: BIGC) is operating in the ecommerce industry that is seeing exponential growth as consumers are preferring to buy and sell online over physicals stores. The Texas-based company’s Cloud solutions help customers make online stores and manage their B2B, multi-channel and international ecommerce operations.
BigCommerce Holdings, Inc. (NASDAQ: BIGC) stock has gained 30% in the last 30 days.
Last month, Guggenheim upgraded the stock to Neutral from Sell and said that the company’s valuation has become at par with its peers. This was after BigCommerce Holdings, Inc. (NASDAQ: BIGC) posted upbeat Q1 results. Morgan Stanley also upgraded the stock to Equal Weight from Underweight and kept its price target of $57.
Citi also upgraded the stock to Neutral from Sell but slashed its price target by $10 to $55.
Matrix Capital Management is one of the 26 hedge funds tracked by Insider Monkey having stakes in BIGC at the end of the first quarter. The fund owns over 3.9 million shares of the company.
Alger Small Cap Focus Fund, in their Q1 2021 investor letter, mentioned BigCommerce Holdings, Inc. (NASDAQ: BIGC). Here is what the fund has to say about BigCommerce Holdings, Inc. in its letter:
“BigCommerce Holdings, Inc. was among the top detractors from performance. BigCommerce operates a software-as-a-service platform, providing various services for launching and scaling e-commerce operations, including store design, catalog management, web hosting, checkout, order management and reporting As of December 31, 2020, it served approximately 60,000 online stores across industries in approximately 155 countries. The stock underperformed during the first quarter after the company provided guidance that was below the peer group average for growth for 2021, which indicated possible market share loss. The company monetizes its services with software subscriptions, which represent 67% of its sales, and by processing digital payments as the majority of partner and services revenues, which represents 33% of sales. BigCommerce recognizes its revenues from digital payments on a net basis, which understates the payment revenue contribution and margin compared to its peer group which recognizes revenues on gross basis.
BigCommerce has transformed over the last decade into a flexible digital commerce platform powering the next wave of online shopping for mid-market and enterprise customers. BigCommerce is differentiated among modern cloud platforms because its open SaaS architecture uniquely positions the firm for the more complex needs of mid- market and enterprise merchants. This is a big opportunity. and we believe BigCommerce is well-positioned for continued market share gains.”
3. MongoDB, Inc. (NASDAQ: MDB)
Number of Hedge Fund Holders: 46
MongoDB, Inc. (NASDAQ: MDB) is a NoSQL database service that offers a host of Cloud-based database solutions for fully-managed Cloud database, database search products, database charts services, developer and enterprise services. MongoDB, Inc. (NASDAQ: MDB) has gained a whopping 65% year to date. In the first quarter of 2021, the company’s revenue jumped 39% to $181.6 million. Loss per share in the period came in at $0.15, beating the Street’s forecasts by $0.21.
For the second quarter, MongoDB, Inc. (NASDAQ: MDB)’s revenue forecast came in at $180 million to $183 million, compared to the consensus estimate of $181.01 million.
A total of 46 hedge funds tracked by Insider Monkey were bullish MDB at the end of the first quarter, up from 36 funds a quarter earlier.
2. Palantir Technologies Inc. (NYSE: PLTR)
Number of Hedge Fund Holders: 32
Founded by legendary investor and billionaire Peter Thiel, Palantir Technologies Inc. (NYSE: PLTR) continues to be one of the best SaaS stocks to buy and hold for long-term gains. In addition to its Foundry and Gotham platforms, Palantir is getting famous for its SaaS product called Apollo. The company continues to bag huge contracts from the US government. Earlier in June, the company received a $7.4 million contract renewal with CDC for disease monitoring and outbreak response. Last month, Palantir Technologies Inc. (NYSE: PLTR) jumped after the company signed a $111 million contract with U.S. Special Ops.
Famous investor and billionaire Stanley Druckenmiller bought 6 million shares of the company in the first quarter of 2021, worth $139.4 million.
Cathie Wood’s ARK Investment Management currently holds 18.6 million shares of Palantir that amounts $433.95 million. PLTR occupies 0.86% of ARK’s total portfolio.
Guardian Fund, in their Q4 2020 investor letter, said that they acquired a position in Palantir Technologies Inc. (NYSE: PLTR) because they believe that the company’s revenues will grow faster than its expenses. Here is what Guardian Fund has to say about Palantir Technologies Inc. in its letter:
“In October, we bought a stake in Palantir Technologies Inc. (NYSE: PLTR). Earlier, in June, our concentrated Tech Fund, which has a mandate to also buy shares in the secondary market, bought shares of Palantir from insiders, before the direct listing. At the price we bought, the equity had much more upside than downside. Palantir is operating a software platform that functions as the digital infrastructure for data-driven operations and decision making. The software helps to structure and capture context in data of large corporations. Governments are increasingly realizing that they have to deal with serious data challenges and cyber risk. As most governments cannot attract the most talented software engineers, they need private enterprises such as Palantir to help them build solid infrastructure. Foundry, Palantir’s software for enterprises, is used by companiesto make safer cars and airplanes or to accelerate cancer research. The speed to bring new clients on board is improving and revenues will grow faster than expenses. Palantir has a long runway of growth ahead.”
1. Shopify Inc. (NYSE: SHOP)
Number of Hedge Fund Holders: 91
Any list of top SaaS stocks to buy and hold would be incomplete without Shopify, which continues to be the top choice of millions of people around the world who want to make web stores to sell their products. New stores created on the company’s platform increased by 62% between March 13, 2020 and April 24, 2020 compared to the prior six weeks.
Loop Capital recently upgraded Shopify Inc. (NYSE: SHOP) stock to Buy from Hold. The firm’s analyst Anthony Chukumba said that he expects the company to see growth as it benefits from the continued secular shift to e-commerce. The analyst set a price target of $1,400 for Shopify Inc. (NYSE: SHOP).
With a $1.9 billion stake in Shopify, Stephen Mandel’s Lone Pine Capital owns 1.7 million shares of the company as of the end of the first quarter of 2021. Our database shows that 91 hedge funds held stakes in Shopify as of the end of the first quarter, versus 90 funds in the fourth quarter.
You can also take a peek at 10 Best ADR Stocks to Buy in 2021 and 10 Best Plastics Stocks to Buy Now.
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Disclosure: None. 10 Best SaaS Stocks to Buy and Hold for Long-Term Profits is originally published on Insider Monkey.
