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Oracle selloff creates bargains for other software stocks

An exterior view of Oracle Corp. headquarters is shown in a Redwood City, Calif.

PAUL SAKUMA/AP

Everyone knows Oracle's latest quarterly results were a disaster. But after Wednesday's fire sale of software companies, investors would be wise to sift through the ashes for some deals on software stocks burned along with Oracle.

Oracle shares plunged 11 per cent during Wednesday's session after the software giant said revenue grew only 3 per cent while earnings of 54 cents a share were below the average analyst's target of 57 cents.

Oracle posted its second-quarter numbers after market close on Tuesday.

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As Oracle sank like a stone, it pulled most of the software sector down with it as investors questioned the level of demand for the services of these tech companies. Salesforce.com fell 5 per cent, SAP shares were off 6 per cent, and Red Hat dropped 4.9 per cent.

If you believe the Warren Buffett mantra that it's time to be greedy when others are fearful, then many of these software names are ripe with opportunity. This idea isn't lost on analysts at R.W. Baird, who came out with a green light for investors to go ahead and snatch up some of the software names they've been looking to buy on weakness.

While Baird analyst Steven Ashley doesn't cover Oracle, he notes that the company's soft quarterly results are similar to recent reports from Red Hat and Salesforce.com. He says he would expect the entire group to undergo a valuation reset and that the group will be "sloppy" into early next year. However, rather than running scared, Ashley says investors should use the expected correction to pick up favorite names.

Ashley offers up his favourite names in the software sector. In the large-cap space, he prefers Salesforce.com and Citrix Systems . Among mid-cap software stocks, Ashley likes Red Hat, and Concur Technologies , Qlik Technologies and SolarWinds .

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