6 Software Penny Stocks to Buy in 2012

There is no better place to find explosive growth than with low-priced penny stocks. I’m not talking about pink sheet stocks that are potentially nonexistent, or fraudulent names set to crash. I’m talking about real companies with real earnings — companies listed for more than one year on a major exchange like the AMEX, NYSE or Nasdaq, and that have a market cap in the ballpark of $100 million.

The returns can be even more powerful when you combine the power of technology stocks and penny stocks. Specifically, the software space is seeing lots of action thanks to the mass acceptance of smart phones and personal computing devices.

These devices are quite powerful, but they still need programs to make them run. The best software companies are those that make users more productive. In this tough economy, those companies that help workers do more with less are poised to be the penny stocks that really move higher.

Because these companies have the wind at their sails from an earnings perspective, these penny stock prices will not last long. Now is the time to pounce before the rest of the market catches on.

Here are six software penny stocks to buy now:
NetSol

6 Software Penny Stocks to Buy in 2012 - NetSol Technologies (NASDAQ:NTWK) is a penny stock with a near $100 million market cap. This is a real company with real products and real revenues. The company makes application software for the automobile finance and leasing industry as well as the banking, financial services and healthcare industries globally.

Shares have drifted lower since peaking near $2.40 per share earlier this year. You can buy this penny stock today for just $1.60 per share. That is a bargain that you should exploit.

NetSol beat estimates in the last quarter by 4 cents per share. Look for a similar result when it announces quarterly results. For the full year, the expectation is for a profit of 18 cents per share. If the company does better than expected, this stock could really take off.
Cover-All

The penny stock Cover-All Technologies (AMEX:COVR) has a market cap of $63 million and is part of the Russell micro cap index. In May, the stock was listed on the AMEX exchange taking shares off bulletin board status. The stock has gained about 50cents per share since that time.

Cover-All Technologies is in the business of providing software products and services for the property and casualty insurance space. That sector has been getting headlines this year with the uptick in natural disasters and inclement weather. Any chance to save money with technology will be more likely to be advanced under more difficult financial times.

Cover-All is profitable and expected to make seventeen cents per share in the current fiscal year. That number jumps 3 cents to 20 cents per share in 2012. The company has beaten estimates in the last two quarters. You can buy that 17% growth for less than 15 times estimated earnings.
Top Image

One of the problems owning penny stocks is trading volume is thin and liquidity makes it tough to sell shares for a profit. In the case of Top Image Systems (NASDAQ:TISA), we have a stock that sees an average of 300,000 shares trading hands each day. Clearly this stock will be followed by a fairly large group of investors.

Top Image system is in the business of making software with respect to data capture and manipulation. This Israeli-based company was founded in 1991. Shares of the company blasted higher in early May after the company reported positive results for its first quarter of 2011.

In the period, the company saw a 36% increase in revenue and posted a profit of seven cents per share as opposed to a loss in the year prior. That was enough to move the stock from $1.34 per share to $2.20 per share. Those are the types of moves you can expect from a penny stock when it delivers solid operating performance. I expect a repeat performance in future quarters.
Authentidate

6 Software Penny Stocks to Buy in 2012 -Authentidate Holding Corp. (NASDAQ:ADAT) is in the business of making the health care industry less paper-intensive. Offering web-based solutions for health systems and physician groups, this penny stock has nearly doubled in value since early April.

I don’t think the gains are done there. This sort of momentum is what I like to see. Historically riding these waves of momentum has been very lucrative to me and my investors.

Authentidate is growing and continually adding to its impressive roster of customers. Most recently the company signed a deal with the Department of Veteran Affairs to provide telehealth solutions. The company is expected to lose money in 2011, but to be profitable in 2012. If so, the stock will double again from here.
Cinedigm Digital Cinema

Penny stocks can be quite volatile. 6 Software Penny Stocks to Buy in 2012 -Shares of Cinedigm Digital Cinema (NASDAQ:CIDM) have been on a roller coaster this year. In mid-March the stock caught fire and jumped a dollar per share over the course of a couple of months. Since that time, shares have given up half that gain to the ballpark of $1.90 per share.

Use the selling to get in on this penny stock ride. Cinedigm provides technology solutions and digital content to theater exhibitors. The company just completed a year of operating losses that it expects to sharply narrow in the 2012 fiscal year. Sales are growing rapidly and that is what investors should focus on today.

To the extent they beat expectations, profitability may arrive sooner than later.
Mind CTI

6 Software Penny Stocks to Buy in 2012 -Mind CTI (NASDAQ:MNDO) is an Israeli-based technology company that provides convergent end-to-end billing and customer-care product-based solutions for service providers as well as telecom expense management solutions. After peaking at nearly $3.60 per share, the stock has slipped to current levels at $2.80 per share.

The move lower comes on the heels of a less-than-stellar quarterly earnings report for its first quarter ending March 31, 2011. Year over year revenue in the period was lower, but the company did post a profit of six cents per share. In addition to reporting a backlog to be recognized this year of $10.2 million Mind CTI had previously declared a cash dividend of 32 cents per share.

With telecom and wireless being all the rage around the globe, I expect Mind CTI to perform quite well for the remainder of the year.

Best Investments in 2012 - 5 Popular Mutual Funds to Avoid

While competitive returns are key for attracting assets, some funds mostly rely on their former glory. They have become somewhat like a trusted brand, leading some investors to do not perform their due diligence. And even if they’re down, won’t an iconic fund return to its winning ways?
Not necessarily. There are many examples where portfolio managers have lost their touch. Sometimes it’s because prior success came on just a few good investments or a surge in a particular market. Or, even more ominously, it could have been the result of some risky bets that just happened to pay off — at one time.
Here’s a look at a few big-time mutual funds that investors shouldn’t just trust on name alone:

Fidelity Magellan

Back in the 1980s, legendary investor Peter Lynch posted a standout performance at the helm of the Best Investments in 2012 -Fidelity Magellan (MUTF:FMAGX) fund. Now that success is a distant memory. Over the past decade, the average annual return was a meager 1.58%. Of course, with $15.9 billion in assets, it is not easy to find investment opportunities that can significantly move the needle.
However, in September, Fidelity brought on board a new manager, Jeff Feingold. Before this, he managed the Best Investments in 2012 -Fidelity Trend (MUTF:FTRNX) fund and posted a strong track record. And at least early on, Feingold is showing promise, with FMAGX up 11.07% year-to-date.

Janus Overseas A

Foreign investing is never easy. A portfolio manager must not only figure out where to find growth opportunities across hundreds of countries, but also deal with political situations and currency swings.
But Best Investments in 2012 -Janus Overseas A (MUTF:JDIAX), which has more than $9 billion in assets, has truly struggled. JDIAX posted a 32.88% loss in 2011, and its average return for the past five years is barely positive, at 0.28%.
The portfolio manager, Brent Lynn, likes to focus on emerging markets and smaller companies. Some years, that strategy can result in big returns. But in others, it means big losses. Either way, it’s a wild ride mutual fund investors could do without.

American Funds Growth Fund

Investors have been losing patience with the American Funds Growth Fund (MUTF:RGAAX). The fund lost 5.58% last year, and it suffered outflows of almost $26 billion.
Yet RGAAX still has a whopping $127 billion under management.
A key issue has been the fund’s focus on foreign markets. Also, because of its enormous size, the Growth Fund is heavily concentrated with large-cap stocks, which can be a bit of a drag, too.

Vanguard Windsor Investor

For 31 years, John Neff posted an average return of 13.7% at the Best Investments in 2012 -Vanguard Windsor Investor (MUTF:VWNDX) fund. However, it has not had the same kind of magic since he left in the mid-90s. The fund has generated an average loss of about 2% int he past five years and fell 4% in 2011.
Current VWNDX manager Jim Mordy (who oversees 70% of the portfolio) is trying to stay true to Neff’s contrarian style. But making money as a contrarian is no easy feat, considering that in today’s markets, value stocks can stay depressed for prolonged periods of time.

Eaton Vance Large-Cap Value

It’s tough to get excited about the Eaton Vance Large-Cap Value (MUTF:EILVX) fund, which has almost $12 billion in assets. During the past five years, EILVX is averaging a loss of 1.6%, and it shed more than 4% last year.
As the name implies, the fund sticks to large-cap stocks, with top holdings including Pfizer (NYSE:PFE), Best Investments in 2012 -Johnson & Johnson (NYSE:JNJ) and Apple (NASDAQ:AAPL). But EILVX has had missteps with its industry allocation — last year, it was bullish on financials, and we all know how that sector played out.