Beaten-down software names such as Microsoft are attractive buys now, Goldman Sachs says

This year’s market pullback has created buying opportunities in the beaten-down software industry, and Goldman Sachs said some companies with strong long-term fundamentals could see a big rebound. High-growth software stocks have been hit hard this year as the Federal Reserve embarked on its aggressive tightening cycle . Goldman’s software universe has suffered a 40% sell-off this year as investors rotated out of high-multiple growth names, compared to the Nasdaq Composite’s roughly 23% loss. The decline has now pushed software’s valuations to attractive levels, according to Goldman. “Our analysis suggests many companies are trading at a sizable discount to their intrinsic value,” Goldman strategists said in a note. “This bolsters our conviction and leads us to focus on growth companies with profits.” Microsoft is one of Goldman’s standout names. When the software giant reported quarterly earnings last month, it beat across the board and issued an optimistic outlook for the current quarter. Goldman said it kept its buy rating on Microsoft, due to the bank’s confidence in the company’s ability to grow revenue by low double-digits and double per-share earnings over the next few years. The bank said Salesforce is another name to outperform as the market is drastically discounting the company’s organic growth right now. The stock is down 35% in 2022. Salesforce is set to report earnings after the bell Tuesday, and investors expect the firm to tackle a number of topics from organic growth, potential margin improvement and the wider deal activity across front-office applications, Goldman said. ServiceNow , Intuit and Datadog were the other names in the sector that Goldman found attractive right now. ServiceNow has sold off about 27% this year, while Datadog is off by a whopping 46%. Intuit is down 34% in 2022.

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