By Senad Karaahmetovic
Software stocks were arguably the biggest underperformer in 2022 as a significant tightening of financial conditions pushed investors away. Several equity strategists expect the difficult macro environment for software stocks to remain in play in the coming weeks and months as the Fed continues to increase rates.
For Wells Fargo analysts, the outlook for software stocks should improve in subsequent months, especially “for those companies best able to navigate the current macro stress test given a potential scarcity premium for growth and valuation levels across software, which are firmly at/below historical norms,” they wrote in a client note.
The analysts told Wells Fargo's clients to get exposure to large-cap stocks that are more defensively positioned. Ultimately, “the pendulum will swing back toward growth + SMID throughout the course of the year.”
Along these lines, they highlighted 5 stocks across different software sub-sectors, namely Microsoft (NASDAQ:MSFT), Workday (NASDAQ:WDAY), Confluent (NASDAQ:CFLT), HubSpot (NYSE:HUBS), and ServiceNow (NYSE:NOW).
The analysts also highlighted Snowflake (NYSE:SNOW), due to its developer-centric and infrastructure-centric business.