Despite the recent volatility, all the major indexes are still up by double-digits for 2019. With active managers outperforming passive managers for the first time in years, many investors are looking for solid stock ideas for the rest of this year and into 2020. With technology still expected to be a sector leader, and software far less cyclical than other areas within the sector, it makes sense for growth investors to look at the leaders.
Last week, four top software stocks were rerated with an assumption of coverage from Brent Thill at Jefferies. While positive overall, the selections are more defensive, and with good reason. With valuations stretched, and the overall macro outlook somewhat more dicey, Thill “[f]avors the large cap names which combine strong fundamentals and multiple support and a preference for applications where there is less chance of being disrupted by Amazon.”
All four large-cap selections are rated Buy at Jefferies and make sense for long-term growth accounts with a degree of risk tolerance.
This high-profile old-school software stock has backed up in price and is offering the best entry point in some time. Adobe Systems Inc. (NASDAQ: ADBE) is a diversified software company that offers electronic document technology and graphic content authoring applications to creative professionals, designers, knowledge workers, high-end consumers, developers and enterprises.
Top Wall Street analysts see the company benefiting from artificial intelligence, predictive analytics, automation bots, speech recognition and natural language processing and image recognition. Some on Wall Street see earnings increasing a solid 30% or more for 2020. Jefferies has felt for years that the company deserves a premium multiple to its peers due to Adobe’s strong competitive position in the creative space and above-average growth prospects.
The Jefferies price target for the shares is $340, and the Wall Street consensus target is $289.79. The shares traded of Friday’s close at $278.29.
This company hits all the metrics in the technology sector for accounting needs. Intuit Inc. (NASDAQ: INTU) is a provider of business and financial management solutions for small and medium-sized businesses, financial institutions, consumers and accounting professionals.
Products and services include TurboTax, QuickBooks, Quicken, small business financial management and payroll processing, personal finance and tax preparation and filing and online banking services through its Digital Insight acquisition. Intuit also offers products on a software as a service (SaaS) platform across all its business divisions.
Intuit has served small businesses and accountants with QuickBooks for more than 20 years. The company was an early innovator in cloud accounting when it first launched QuickBooks Online in 2001. QuickBooks Online has more than a million paying subscribers, cementing its market leadership as small businesses shift to the cloud.
Over 40% of small businesses are using either Quickbooks Online or Quickbooks Desktops, while 35% are using Excel or manual paper accounting. This highlights the underlying opportunity for the company going forward.
Investors receive a 0.79% dividend. Jefferies has a $320 price target, while the consensus target is $289.79. Shares closed on Friday at $270.07.