We recently published a list of 16 Best Mid Cap Growth Stocks To Buy Now. In this article, we are going to take a look at where Guidewire Software Inc. (NYSE:GWRE) stands against other best mid cap growth stocks.
50 Basis Point Reduction: Exaggeration or Hidden Benefit?
Recent discussions among financial strategists emphasize the current stock market dynamics, particularly regarding the upcoming US elections. Investors are encouraged to view dips in stocks of some sectors as long-term buying opportunities, as historical trends suggest that 10% corrections can be advantageous entry points.
While recent sell-offs were driven by sector-specific issues rather than broader economic concerns, the long-term outlook remains positive. Despite recession worries, the US economy is stable, with strong consumer performance and corporate profits exceeding expectations. This has contributed to a rebound in the NASDAQ and S&P 500.
Inflation has reportedly dropped to a three-year low of 2.6% in August, marking the lowest rate since March 2021. As inflation continues easing, there has been ongoing speculation that the Fed may begin cutting interest rates, potentially starting with a 25 basis point reduction.
Market analysts, including Gene Goldman and Craig Johnson, anticipate multiple rate cuts due to slowing inflation and economic growth. We discussed this earlier in our article about the 12 Best Small Cap Tech Stocks to Buy. Here’s an excerpt from it:
“Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated….
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, 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 emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.”
However, on September 16, Erika Najarian, UBS senior equity research analyst, mentioned 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, leading investors to question a less favorable economic outlook. She believes some anticipated cuts may already be reflected in money center bank stock prices due to their strong year-to-date performance. A 50 basis point cut could especially benefit mid-cap stocks affected by commercial real estate issues.
She explains that a 50 basis point cut would significantly impact net interest income. Money center banks benefit more from rising rates, while mid-caps are liability-sensitive and may see deposits repriced faster, favoring them if rates are cut aggressively.
The recent Basel III news with lower capital thresholds triggered negative stock reactions, exacerbated by JPMorgan’s comments on reduced investment banking and trading growth targets. Factors included ongoing Basel III discussions since December 2023 influencing pricing, a leading bank suggesting consensus net interest income expectations are too high, casting doubt on other banks, and emerging signs of consumer weakness potentially spreading beyond lower-income segments.
Najarian highlights the challenges analysts face in predicting net interest income due to shifting rate expectations. While higher rates have traditionally benefited bank profitability, potential cuts create uncertainty about financial performance. She points out that banks must choose between cutting rates to remain competitive or maintaining volume, complicating forecasts for net interest income.
As Najarian emphasizes the uncertainty surrounding interest rate cuts and their effects on the financial sector, and investors await clarity from the Fed, we’re bringing you a list of the 16 best mid-cap growth stocks to buy now.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An insurance adjuster reviewing images and paperwork to process a claim.
Guidewire Software Inc. (NYSE:GWRE)
Market Capitalization as of September 13: $14.20 billion
Number of Hedge Fund Holders: 43
Guidewire Software Inc. (NYSE:GWRE) is a global software company that offers an industry platform for property and casualty insurance carriers. Its comprehensive suite of solutions helps insurers manage their entire business lifecycle, from underwriting and policy administration to claims processing and risk management.
In FQ4 2024, the company recorded a revenue of $291.52 million, up 7.99% year-over-year. Subscription and support revenue was up 28% year-over-year, offset by a 6% decline in license revenue, due to the migration of on-premise customers to the cloud. Services revenue was also down 14% year-over-year as the company transitioned more implementation work to its SI (system integrator) partners and minimized reliance on subcontractors.
The ARR was up 14% on the year. Growth was driven by 16 closed cloud deals in this quarter (13 InsuranceSuite cloud deals), and 42 overall for the year (37 InsuranceSuite cloud deals). These results position the company well to achieve its $1 billion ARR target this fiscal year.
Guidewire Software Inc. (NYSE:GWRE) added 4 new customers in FQ4. A super regional personal lines carrier chose the company’s full suite of data products to modernize their core systems for growth, while Argonaut Managed Services selected ClaimCenter (the company’s management system) to consolidate claims systems and enhance operational efficiency.
Over 25,000 professionals from 38 SIs are now collaborating with this 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 over 215 technology partners.
The strong momentum in customer engagement, evidenced by significant expansions and new wins, positions it for continued growth in the industry.
Parnassus Mid Cap Fund stated the following regarding Guidewire Software, Inc. (NYSE:GWRE) in its Q2 2024 investor letter:
“Guidewire Software, Inc. (NYSE:GWRE), the leading software provider for property and casualty insurers, reported strong fiscal-third-quarter earnings highlighted by accelerating growth in annual recurring revenue and structurally higher profitability. With demand increasing and a broad array of strategic partners to guide implementations and migrations, we see a long runway ahead.”
Overall, GWRE ranks 12th on our list of best mid cap growth stocks to buy now. While we acknowledge the potential of GWRE as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GWRE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
