• Investors should bet on the stocks of software companies that Wall Street refers to as GARP, or “growing at a reasonable price,” analysts said Tuesday.
  • They pointed to six top GARP bets: Microsoft, ServiceNow, Dropbox, Crowdstrike, Proofpoint, and Check Point.
  • Amid rising fears of another tech bubble, they said the six software names were solid bets given their role in the work-from-home and school-from-home trends.
  • “While we don’t feel qualified that we can call the top of what looks like a bubble, we feel safest with GARP names that have exposure to WFH/SFH trends,” the Macquarie analysts told clients in a note.
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In an unpredictable market reeling from a pandemic, investors should bet on companies that analysts from one Wall Street firm refer to as GARP companies, meaning that their stocks are “growing at a reasonable price.” 

As some tech stocks rally in what some experts worry is a risky bubble, the GARP stocks are all software companies playing a critical role in the two trends that are expected to last, “work from home” and “school from home,” Macquarie’s Sarah Hindlian-Bowler and Calvin Patel told clients in a note on Tuesday.

“While we don’t feel qualified that we can call the top of what looks like a bubble, we feel safest with GARP names that have exposure to WFH/SFH trends,” they said.

The Macquarie analysts named six top picks: 

  • Microsoft, the second most dominant cloud platform, which has also seen a spike in demand for its collaboration tools.
  • ServiceNow, which runs a major work-automation platform now used by more than 6,000 companies, most of them Fortune 500 firms.
  • Dropbox, the popular data-storage cloud platform.
  • Three leading cybersecurity players: Crowdstrike, Check Point, and Proofpoint.

The Macquarie analysts said many software stocks may be overvalued with the recent tech-market rally. After a steep decline in March as the coronavirus crisis was escalating, the tech-heavy Nasdaq Composite index has posted sharp gains and is up about 20% since the year began.

“At such high valuations, investors are paying premiums for growth,” the Macquarie analysts wrote. But enterprise-software companies, led by their six top choices, are in relatively more certain positions, given their emerging roles in the remote-work and -school world, they said. 

“Software sells to businesses, is critical for operations, has recurring models, and aids in remote collaboration – four aspects that have shielded the sector from heavy blows,” they said.

Got a tip about Microsoft, ServiceNow, Dropbox or another tech company? Contact this reporter via email at [email protected], message him on Twitter @benpimentel, or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.

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