As an investor, it doesn't pay to follow the crowd.

In this series, though, we highlight a possible exception -- the collective wisdom of our CAPS community. Read the next section if you're unfamiliar with our methodology. Skip it if you want to go straight to the results.

Why this crowd is different
Jumping into a stock because your rich neighbor did, or because you heard about it from your friend's uncle who used to work on Wall Street, or because CNBC has been talking about it nonstop is a recipe for disaster.

If there's one thing I've learned as a stock analyst, it's that any stock can be gussied up to sound like a world-beater. If there's a second thing I've learned, it's that being a smart person doesn't make you a good investor.

In the hands of a smart person with good communication skills, the never-were and never-will-be stocks sound like tickets to instant fortune. The ancient Greek philosophers made the distinction between rhetoric and knowledge. The former is convincing; the latter is true.

That's why we factor in track record in our Motley Fool CAPS community. We invite everyone to give stocks an outperform (i.e., a "buy") or underperform rating (i.e., a "sell") in CAPS. We then use those opinions to calculate a rating for each stock -- from one to five stars (five being the best). But -- and this is a big distinction -- we give more weight to the opinions of folks whose picks have performed well in the past.

The No. 1 software buy
So, with that methodology as prelude, I present to you the number one software stock (and the top runners-up) based on the number of CAPS members who have rated the stock an outperform. I only included stocks that are consensus buys (i.e. that have a four- or five-star rating).


Market Capitalization (in millions)

Outperform Picks

CAPS Rating (out of 5)

Activision Blizzard (Nasdaq: ATVI)




Nuance Communications (Nasdaq: NUAN)




Oracle (Nasdaq: ORCL)




GigaMedia (Nasdaq: GIGM)




Quality Systems (Nasdaq: QSII)




VASCO Data Security (Nasdaq: VDSI)




Satyam Computer Services (NYSE: SAY)




Source: Motley Fool CAPS.

More CAPS members think Activision Blizzard is a buy than any other software company, and it's a five-star stock. Do you think Activision Blizzard is overrated? Make your thoughts known in CAPS by clicking here. Or just go there to do further research on one of these popular stocks.

Anand Chokkavelu doesn't own shares of any company mentioned. Activision Blizzard, Nuance, Quality Systems, and VASCO Data are Motley Fool Stock Advisor picks. Nuance is a Motley Fool Hidden Gems pick. Motley Fool Options has recommended a synthetic long position on Activision Blizzard. The Fool owns shares of Activision Blizzard and Oracle. The Fool has a disclosure policy.