Be jealous when others fear: 2 shares you should consider buying right now
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The best time to buy stocks is when prices are low. But that’s easier said than done – when stocks fall it’s usually because investors are worried about the underlying business in some way.
That’s the case with software stocks at the moment. With valuation multiples at levels that investors could only dream of over the past decade I think there are real opportunities to consider.
What is the risk?
Currently, the concern with software is that artificial intelligence (AI) is increasing competition. And the danger is that this could force existing companies to compete on price, squeezing margins.
The best thing about these businesses is their ability to keep raising prices. But if that comes under threat, their shares will be worth far less than investors thought they were six months ago.
Importantly, however, current software leaders are not immune. From the customer’s perspective, switching is complex, difficult, and risky, so the savings must be worth it.
Software stocks have been falling across the board lately. But I don’t think the threat is equal for all companies, which means there are bigger opportunities to consider right now.
The Sage Group
FTSE 100 company The Sage Group (LSE:SGE) provides accounting software for medium-sized businesses. The stock is down 37% in the past 12 months, which suggests a big challenge – and there is one.
Anthropic has introduced agent plugins that threaten to do much of what the company’s core product does. That’s an obvious risk, but there are a few things investors should be aware of.
One is that the products are not the same – Sage’s Trust Label means that the company is willing to stand behind the compatibility standards of its software. Anthropic does not do this.
Another thing is that Sage subscriptions make up about 1% of a typical customer’s budget. That makes changing a lot of time and effort and a big risk of little potential savings.
Guidewire Software
Guidewire Software (NYSE:GWRE) and I have a history – I bought the stock in 2022, sold it in 2023, and regretted it ever since. But it’s 50% off its height, so I might get another chance.
The company provides software to the insurance industry and has been steadily signing up carriers over the past few years. And the reason it took so long may be for its own good.
The insurance industry is notoriously slow. But that may be to Guidewire’s advantage – it has never lost a customer to competitors because they usually don’t switch unless they have to.
As a result, the opportunity to buy a stock after a sharp selloff can be a great opportunity. So I’ll be taking a closer look at my own portfolio over the next few weeks.
Time to do something?
It’s easy to talk about being greedy when others are afraid or buying quality stocks at low prices. But the truth is that this is often harder than it seems.
Taking advantage of opportunities involves being prepared to think about buying when there seems to be a threat – often there is – on the horizon.
That’s the case with Sage Group and Guidewire Software right now. But I think investors should see today’s prices as an opportunity to consider buying at unusually attractive valuations.
