Value, like many things, often seems to be found most easily in the last place anyone would think to look. While for most things (your car keys, for example), this is merely a trick of the mind, for value, it is a real and justifiable phenomenon: the finding of value leads to the buying of value, which causes a reduction of value. It follows that we might be able to find some undervalued stocks by looking in an industry long ago dismissed by value investors as thoroughly and inevitably overvalued: internet software. Obviously, today’s picks are for the true contrarians out there — those with the brass the recognize it when stocks that everyone likes turn out to be great buys.
As it happens, while I was researching this forgotten sector, Microsoft (MSFT) happened to draw the market’s attention with an excellent second quarter, and although Microsoft rose more than 5% on Wednesday, the sector as a whole doesn’t appear to be rising any more than the market — at least, not yet. Here are my top five picks. With one exception, these companies are mid-sized, and while some are dominant their sub-industry, these may be sub-industries that you don’t think about as often as you do, say Microsoft.
Remember to treat these ideas as just that, ideas, and do your own research before investing.