We recently published a list of 16 Best Mid-Cap Growth Stocks to Buy NowIn this article, we’ll take a look at where Guidewire Software Inc. (NYSE:GWRE) stands against other top mid-cap growth stocks.
50 basis point reduction: exaggeration or hidden benefit?
Recent discussions among financial strategists highlight the current dynamics of the stock market, particularly in light of the upcoming U.S. election. Investors are encouraged to view declines in stocks in certain sectors as long-term buying opportunities, as historical trends suggest that 10% corrections can be advantageous entry points.
While recent selloffs have been driven by sector-specific issues rather than broader economic concerns, the long-term outlook remains positive. Despite recession concerns, the U.S. economy has been stable, with strong consumer performance and corporate earnings beating expectations. This has helped fuel a recovery in the NASDAQ and S&P 500.
Inflation reportedly fell to 2.6% in August, a three-year low. This is the lowest level since March 2021. As inflation continues to decline, there is ongoing speculation that the Fed will cut interest rates, possibly starting with a 25 basis point cut.
Market analysts including Gene Goldman and Craig Johnson are expecting multiple rate cuts due to slowing inflation and economic growth. We discussed this earlier in our article on the 12 Best Small Cap Tech Stocks to BuyHere’s a snippet of it:
“Gene Goldman indicated that his base case is for three rate cuts of 25 basis points each, starting in September. He believes in slowing inflation, a slowdown in economic growth and the overall resilience of the economy, which he believes is not as severe as some reports suggest. Goldman noted that while the labor market has shown mixed signals, with both positive and negative data, market expectations for deeper rate cuts may be overdone….
Craig Johnson also believed that the market is already expecting a 25 basis point cut, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig stressed the importance of remaining calm, as October has historically been a strong month for markets, with gains seen 86% of the time since 1929.”
However, on September 16, Erika Najarian, senior equity research analyst at UBS, reported that small- and mid-cap stocks could potentially benefit from a 50 basis point cut.
Najarian attributes the recent underperformance of financial stocks to market concerns about the implications of potential rate cuts for economic stability, which have investors worried about a less favorable economic outlook. She believes some of the expected cuts have already been reflected in the share prices of money center banks due to their strong performance this year. A 50 basis point cut could be particularly beneficial for mid-cap stocks that have been hit by commercial real estate woes.
She explains that a 50 basis point cut would have a significant impact on net interest income. Money centre banks benefit more from rising interest rates, while mid-caps are liability-sensitive and may see deposits revalued more quickly, which benefits them if rates are cut aggressively.
Recent Basel III news of lower capital thresholds has caused negative reactions for stocks, compounded by JPMorgan’s comments on lowered investment banking and trading growth targets. Factors included ongoing Basel III discussions since December 2023 impacting the price, a leading bank suggesting consensus net interest income expectations are too high, casting doubt on other banks and emerging signs of consumer weakness potentially extending to lower-income segments.
Najarian highlights the challenges analysts face in forecasting net interest income due to changing interest rate expectations. While higher interest rates have traditionally benefited banks’ profitability, potential cuts create uncertainty about financial performance. She points out that banks must choose between cutting rates to remain competitive and maintaining volume, which complicates net interest income forecasts.
As Najarian highlights the uncertainty surrounding rate cuts and their effects on the financial sector, and investors await clarity from the Fed, we bring you a list of the 16 Best Mid-Cap Growth Stocks to Buy Now.
Why are we interested in the stocks that hedge funds are buying? The reason is simple: our research has shown that we can beat the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has delivered a 275% return since May 2014, outperforming its benchmark by 150 percentage points (Ssee more details here).
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Guidewire Software Inc. (NYSE:THREAD)
Market Cap as of September 13: $14.20 Billion
Number of hedge fund holders: 43
Guidewire Software Inc. (NYSE:GWRE) is a global software company that provides an industry platform for property and casualty insurers. Its comprehensive suite of solutions helps insurers manage the entire business cycle, from underwriting and policy administration to claims processing and risk management.
In FQ4 2024, the company posted revenue of $291.52 million, up 7.99% year-over-year. Subscription and support revenue increased 28% year-over-year, offset by a 6% decline in license revenue, due to the migration of on-premises customers to the cloud. Services revenue also declined 14% year-over-year, as the company offloaded more implementation work to its SI (systems integrator) partners and minimized its reliance on subcontractors.
ARR increased 14% year-over-year. Growth was driven by 16 closed cloud deals in the quarter (13 InsuranceSuite cloud deals) and 42 total for the year (37 InsuranceSuite cloud deals). These results position the company well to achieve its ARR target of $1 billion this fiscal year.
Guidewire Software Inc. (NYSE:GWRE) added four new customers in FQ4. A super-regional personal lines carrier selected the company’s full suite of data products to modernize core systems for growth, while Argonaut Managed Services selected ClaimCenter (the company’s management system) to consolidate claims systems and improve operational efficiency.
More than 25,000 professionals from 38 SIs now work with the company. In FQ4, the number of cloud-certified partner professionals grew 22% year-over-year to 9,500. The Guidewire Marketplace has expanded to include more than 215 technology partners.
The strong momentum in customer engagement, evidenced by significant expansions and new acquisitions, positions the company to continue to grow in the sector.
Parnassus Mid Cap Fund has made the following statement regarding Guidewire Software, Inc. (NYSE:GWRE) in the second quarter of 2024 letter from investor:
“Guidewire Software, Inc. (NYSE:GWRE), the leading software provider to property and casualty insurers, reported strong earnings in the third fiscal quarter, marked by accelerated annual recurring revenue growth and structurally higher profitability. With increasing demand and a broad set of strategic partners to support implementations and migrations, we see a long runway ahead.”
In short, GREAT is in 12th place on our list of the best mid-cap growth stocks to buy now. While we recognize GWRE’s potential as an investment, our conviction is based on the belief that AI stocks hold great promise for delivering high returns and in a shorter time frame. If you’re looking for an AI stock that shows more promise than GWRE but trades at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.