With prices falling even as earnings grow, which names are actually worth a look?

Risks and opportunities 

There are two threats weighing on software stocks right now. One is the risk of artificial intelligence (AI) disruption.

The other is private credit. The issue is that private equity firms have taken on a lot of debt to buy software companies.

Falling valuations make refinancing these loans harder. But the equity might not cover the outstanding debt.

That could make credit conditions tighter across the board. And this could include publicly traded software names.

According to CNBC, Burry has been buying several names in the industry. And two in particular stand out to me. 

Adobe

One is Adobe (NASDAQ:ADBE). I’m interested in this because it’s actually one of the names I’m avoiding. 

The firm’s balance sheet suggests there’s no problem with debt. But it’s the disruption risk that worries me.

Adobe is an example of a horizontal software firm. That means its products are used across a variety of industries. 

That’s a good thing in terms of a big target market. And a lot of potential customers can mean strong growth prospects. 

There is, however, a downside. Lower barriers to entry make it easier for a firm to build something that fits its specific needs.

That’s the AI disruption threat writ large. And Adobe is one of the stocks I’m wary of on those grounds.

Veeva

Veeva Systems (NYSE:VEEV) is different. It specialises in software for life sciences industries, which are highly regulated. 

That means switching isn’t just about finding a better product. Any alternative has to be officially validated as compliant.

It also means building a better product is just plain harder. Veeva’s software is designed specifically for the industry. 

Specialisation does bring risks. It means the firm is more exposed when the industry goes through tough times. 

This is been happening with Veeva in the US recently. And this is something investors need to take note of. 

In terms of AI, though, I don’t see a big disruption risk. And like Adobe, its balance sheet means debt shouldn’t be an issue.

Opportunity?

Software stocks haven’t been this cheap relative to the S&P 500 in the last 10 years. So the industry has to be worth a look. 

Investors buying Adobe shares should know they’re in good company. Michael Burry is a serious and sophisticated investor. 

By itself, though, that’s not a good enough reason to buy a stock. And I’m wary of the threat of AI disruption.

With Veeva Systems, my view is much more positive. I think the barriers to entry for AI competitors are much higher. 

Like Burry, I’m looking at more than one name in the industry. And Veeva is one of the names on my list right now.

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I won’t keep you in suspense: my answer’s ‘no’. Investors really need to think carefully about competition right now, but I think some companies are still very well-positioned.

Barriers to entry

There’s no way around the fact that AI can now write software code, so investors need to look for businesses that are protected by other barriers to entry. 

One of the best examples is operating in an industry that has specific regulatory requirements. In these situations, existing companies can’t easily be replaced by AI-generated alternatives. There are a few S&P 500 names that fit the bill. One is life sciences software firm Veeva (NYSE:VEEV) and another is government-focused Tyler Technologies (NYSE:TYL).

In both cases, there are risks. But I think competing with these companies is harder than just writing the kind of software that can easily be generated by something like GPT-5.

Veeva

Veeva focuses on providing software for life sciences companies. Its products help with clinical trials, regulatory compliance, and quality management.

Targeting one sector specifically can be risky. And this is especially true of healthcare which has been facing its own challenges from the current US administration.

In terms of AI disruption though, the barrier to entry isn’t just the ability to write software. It includes domain expertise and validated systems in an industry where mistakes can be costly.

This makes setting up a competing operation more difficult than it would be with something less specialised. And I think it gives the firm better protection from generative AI competitors.

Tyler Technologies

Tyler Technologies doesn’t have proprietary data protecting it. But being a software provider for US state and local governments makes it unusually difficult to compete with.

Suppliers for governments need to meet strict security standards and have to be approved as vendors. And getting this is difficult, complicated, and time-consuming for new competitors.

There’s always a risk of public budgets tightening in a weaker macroeconomic environment. And with Tyler Technologies trading at some big multiples, this is something to be aware of.

In terms of the risk of AI disruption though, I don’t think the firm’s position has weakened significantly. The regulatory requirements still look like a big challenge for competitors, to me.

Software moats

For software companies where the main barrier to entry is producing the product, AI that can write code looks like a real threat. This however, isn’t the same across the industry.

I think Veeva and Tyler Technologies both have better protection that comes from specific expertise in a regulated industry. So I’m keeping my eye on these in case they start falling.

The one that has surprised me so far is Axon. The firm’s vertically integrated into policing and law enforcement and that looks to me like a strong competitive advantage. 

Axon’s stock-based compensation costs put me off the company at the moment. But I do think it could be a name that could develop into an interesting long-term opportunity.

The post As software stocks get slaughtered are these S&P 500 names next to crash? appeared first on The Motley Fool UK.

That’s why I’m topping up some of my US stocks, including PayPal (NASDAQ:PYPL), Veeva Systems (NYSE:VEEV), Mercadolibre, Crowdstrike, and Arista Networks.

Across all five of these enterprises, each has had its own set of challenges in recent years. For example, Mercadolibre is navigating a high inflationary environment in Latin America, while Crowdstrike accidentally crashed the internet earlier this year. However, even with these challenges, all five businesses appear primed to thrive both next year and beyond.

Incoming growth

Let’s zoom in on PayPal first. The payment processing giant saw its top-line growth decelerate aggressively versus 2021. This triggered a crash in its share price that has still hasn’t recovered even after climbing more than 40% in 2024.

Looking at its latest results, growth continues to be a challenge. However, profit margins are on the rise, and earnings are once again growing at a rapid pace. Margin expansion obviously has its limits. However, with new partnerships being formed with Amazon and Shopify and online spending trends ramping up, the transaction volume moving through PayPal’s network could start accelerating again.

Of course, it’s not the only digital payments company chasing this opportunity, and the competition is getting increasingly fierce. However, PayPal isn’t the only firm that’s expected to benefit from improving macroeconomic conditions.

Veeva Systems is the global standard drug development platform used by 85% of all life sciences companies around the world. Its technology allows drug developers and research firms to organise, analyse, and remain compliant throughout pre- and post-clinical trials.

With interest rates elevated and equity valuations relatively soft, a lot of clinical trials have been temporarily postponed. But with interest rates dropping, a new wave of studies could be launched next year, most of which will require the specialist software that currently only Veeva seems to provide.

However, rising competition from the likes of Salesforce may soon change that with the launch of its own life science CRM solution. If a cheaper alternative that’s just as capable becomes available, Veeva’s monopoly-like grip might start to loosen.

Balancing risk and reward

The other three stocks also have their fair share of growth catalysts in 2025. And if everything goes according to plan, these US stocks could continue their current upward trajectory. But obviously that isn’t guaranteed.

Even if the US economy ends up delivering on GDP forecasts, these businesses, while strong, still have operational threats to contend with, a few of which I’ve already highlighted. And any hiccups could prove problematic in the short-term given these companies (with the exception of PayPal) are trading at a premium valuation.

That means volatility‘s to be expected. Nevertheless, given both the short-term and long-term potential, that’s a risk I’m willing to take for my growth portfolio. And that’s why I think other growth investors should consider taking a closer look.

The post These are my top 5 shares to buy before 2025! appeared first on The Motley Fool UK.

At a price-to-earnings (P/E) ratio of 57, shares of this tech enterprise don’t look remotely cheap. However, when compared to its 10-year average of 81, the firm appears to be trading at a 30% discount to its usual premium price point. Why has Veeva commanded such a rich valuation over the last decade? And why did I just buy more for my portfolio at this price point?

Growth catalysts on the horizon

Outside the world of pharmaceuticals and biotech, Veeva isn’t a well-known enterprise. But there’s a good chance that anyone who has taken medicine before has benefited from its expertise.

The firm’s behind the world’s leading drug development platform, which is designed to streamline the research process across the entire pipeline. That includes clinical trials all the way to commercialisation of new and existing drugs & treatments.

Today, 85% of the global life sciences sector is dependent on Veeva to function, including 94% of the world’s 50 largest industry leaders. And if it were to suddenly disappear, the global healthcare industry could crumble. And since the platform’s heavily integrated into customer operations, it naturally generates switching costs, resulting in a very sticky relationship and pricing power.

Now that interest rates have started falling, capital liquidity‘s on the rise. As such, delays in clinical trials and research projects may soon start to end, driving up demand for Veeva’s solutions in the short term. And since the long-term need for efficient drug development and marketing isn’t likely to disappear, the long-term trajectory of this business is also exceptionally promising.

Risk versus reward

The group’s impressive growth and free cash flow generation have long granted it a premium valuation. And while performance has slowed in recent quarters due to the economic landscape, shares still aren’t ‘cheap’ in the traditional sense.

Obviously, that introduces the risk of volatility to a portfolio. However, even with its market-dominant position, Veeva isn’t immune to disruption. Salesforce has recently announced plans to launch its own platform for the life sciences sector, which would be in direct competition with Veeva. Suppose this new platform proves just as capable? In that case, it could undermine Veeva’s existing pricing power as well as make future growth far more challenging.

Nevertheless, in an industry filled with extensive regulation, Veeva’s experience undoubtedly gives it an upper hand against its new rival. And while it’s a risk worth watching closely, I feel that the stock’s weakened valuation has created a not-necessarily-cheap but fair entry point to top up my existing position.

The post I reckon this S&P 500 stock could be among the best shares for me to buy today appeared first on The Motley Fool UK.

I’ve already started topping up some of my existing portfolio positions as well as opening new ones. So, here are two of my latest stock purchases.

The powerhouse behind pharmaceuticals

Veeva Systems (NYSE:VEEV) is not a household name. But in the world of pharmaceuticals, it’s the platform that powers almost all of modern drug development. Veeva’s platform provides a comprehensive suite of applications designed to streamline the research and commercialisation processes of medicine while simultaneously ensuring regulatory compliance.

It’s effectively the Salesforce of the life sciences industry. And it’s used by 47 of the world’s 50 largest pharma companies including AstraZeneca and GSK. With revenue and earnings increasing by an average of 22% per year since 2019, the firm’s growth has been impressive. But more importantly, it’s been pretty consistent – a trend I expect to continue, given its industry-standard status.

However, one big risk I’m watching carefully is the recent announcement of Salesforce’s new life sciences CRM solution. Many of Veeva’s customers are still using the group’s old CRM system, which was built from the Salesforce platform.

The firm is currently migrating clients to its new proprietary Vault CRM to remove this dependency by 2030. However, if Salesforce’s new solution serves as a viable alternative, customers being forced to migrate might decide to switch sides instead.

Yet, replicating Veeva’s capabilities is no easy task, neither is penetrating its 85% global market share. That’s why, despite the rising competitive risk, I remain optimistic for the long run. And subsequently, I’ve just added more shares to my portfolio this month.

A fintech comeback story

During the 2022 stock market correction, PayPal (NASDAQ:PYPL) shares were hit hard, and more than 75% of the firm’s market cap was wiped out. While I think the sell-off was a bit overblown, there was some justifiable cause for concern both surrounding its valuation and bad communication from management.

Yet the shares are actually up 50% since July 2024. The recent third-quarter results were a bit of a mixed bag as revenue fell just short of expectations. However, they also revealed significant improvements in margins.

Total payment volume increased by 9% during the three-month period to $423bn, driven largely by increased activity among existing customers. This also translated into expanding profitability, enabling earnings per share to jump 22%, beating expectations.

It seems management’s tactics of maximising the value of its existing user base are creating value. And its also capitalised on its depressed valuation with $1.8bn in share buybacks.

There are still some important factors to keep an eye on. While overall profitability has increased, transaction margins are still facing the pressure of intense competition. And with the expected 2025 IPO of Revolut, among other new fintechs, this is a threat that’s not likely to disappear any time soon.

Nevertheless, with PayPal shares trading at a forward price-to-earnings ratio of just 18.2, the growth stock is priced attractively, in my opinion. That’s why it’s on my buy list and why I’ve just bought more.

The post My 2 best US growth stocks to buy in November appeared first on The Motley Fool UK.

However, while the risk is certainly higher, these typically younger enterprises can enhance an investment portfolio to generate far superior returns in the long run.

The UK has its fair share of growth investments to pick from. But lately, I’ve had my eye on US tech stocks that continue to look like terrific opportunities even in the current economic climate.

With that in mind, let’s look at two firms from my portfolio that I’m currently tempted to add more of.

Driving drug development

It’s no secret that researching, developing, and eventually bringing new pharmaceutical drugs to the market is a challenging task. The process can take more than a decade from start to finish, costing billions along the way. That’s why pure-play pharmaceutical companies can be quite a risky investment.

However, one business that thrives even during failed clinical trials is Veeva Systems (NYSE:VEEV). The company provides a specialised CRM platform to aid pharmaceutical, biotech, medical device, and clinical research organisations in bringing new products to market faster without accidentally breaching compliance.

While there are alternative software solutions available, Veeva has managed to position itself as the industry standard, used by the biggest names in healthcare, including GSK, Moderna, Pfizer, AstraZeneca, Bristol Myers Squibb, and Novartis, among others.

While thousands of healthcare companies rely on Veeva, the bulk of the revenue stream stems from these industry leaders. As such, there is some sales concentration risk. If a key client decides to swap to an alternative solution, it could have a dire impact on the firm’s performance.

But with Veeva so heavily embedded into its customers’ operations, that’s far easier said than done. And since demand for new and effective medicine isn’t likely to disappear for decades, Veeva looks like a top-notch growth stock, in my eyes.

Powering the cloud

While Veeva’s platform is at the heart of healthcare, it wouldn’t function without cloud computing providers like Microsoft Azure. But, Azure itself is reliant on other firms to provide the critical hardware needed to create the necessary bandwidth for rapid computing.

Today, Cisco Systems is a key supplier to the cloud computing industry, providing critical hardware to data centres. But over the last decade, Arista Networks (NYSE:ANET) has been slowly pushing Cisco out of the market.

The group’s latest ethernet switching provides the largest bandwidth in the industry, far outperforming Cisco’s own technology.

Subsequently, Arista now controls more than 23% of the global ethernet switch market, versus only 7% in 2013. And this trend doesn’t look like it’s going to change anytime soon.

Similar to Veeva, Arista has a revenue concentration risk, with Microsoft and Meta Platform making up a ginormous chunk of its revenue stream. And the loss of one of these customers could have severe repercussions.

Nevertheless, management’s heavy investment in research & development has propelled the group to be significantly more technologically advanced than its competitors.

So much so that I believe Arista could become the new dominant industry leader within the next decade.

The post 2 growth stocks that could be big winners in the next decade and beyond! appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Alphabet

What it does: Alphabet is one of the world’s largest technology companies. It is the owner of Google and YouTube.

By Edward Sheldon, CFA. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) shares have taken a big hit in 2022 and I think this has created a great buying opportunity for long-term investors like myself.

While Alphabet’s revenue growth has slowed recently due to weakness in the digital advertising market and currency headwinds, the long-term growth potential here remains significant, in my view.

One potential growth driver is cloud computing. Currently, Alphabet is the third-largest cloud provider behind Amazon and Microsoft, and last quarter it generated revenue growth of 38% in its cloud division.

Another potential growth driver is its ‘Other Bets’ division. Here, the company has exposure to artificial intelligence, self-driving cars, digital healthcare, biotechnology, smart home technology, and more.

Two risks to consider with Alphabet include prolonged weakness across the tech sector and lawsuits against the company. However, with the stock trading on a P/E ratio of less than 20, I think the risk/reward skew is attractive.

Edward Sheldon owns shares in Alphabet, Amazon, and Microsoft.

Realty Income 

What it does: Realty Income is a real estate investment trust (REIT) which operates 11,700 properties spanning multiple sectors. 

By Royston Wild. Encouraging GDP from the States recently showed growth speed up to 2.6% in the third quarter. But the threat of a recession still looms large amid Federal Reserve rate hikes and weak growth elsewhere. 

In this scenario snapping up defensive real estate shares could remain a good idea for nervous investors. Realty Income (NYSE: O) is one such stock on my radar right now. The long-term lease agreements its tenants are locked into should keep earnings stable in what could be a tough 2023. 

I also like Realty Income because of the sector split of its property portfolio. It has significant weighting towards grocery, convenience, discount and drug stores, for example. Businesses within these areas are particularly resistant to recessionary conditions. 

Finally, I believe this US stock could be a great way for me to boost my passive income. It has to pay a minimum of 90% of annual profits out by way of dividends. And it’s raised dividends for 100 straight quarters.

Royston Wild does not own shares in Realty Income. 

United Parcel Service

What it does: United Parcel Service is the world’s largest parcel delivery company, operating primarily in the United States.

By Gabriel McKeown. After a very strong three years, the momentum behind United Parcel Service (NYSE: UPS) appears to have reduced slightly. The stock is down almost 15% this year, however, the underlying fundamentals are remarkably strong. Profit margins are significant, free cash flow is considerably above historical averages, and debt levels remain low.

The company also offers a dividend yield of 2.5%, and this is forecast to reach 3.3% next year. This income generation is another positive lament, as the dividend has been paid consistently for the last 23 years, and grown for the last 7.

This recent share price decline has also resulted in the price-to-earnings ratio falling to 17, which appears to be fair value given the strength of the fundamentals, and positive forecasts. Also given the market share covered by UPS, this should help to isolate the stock from further market negativity.

Gabriel McKeown does not own shares in United Parcel Service.

Veeva Systems

What it does: A cloud-technology company powering the drug development pipeline for pharmaceutical and biotechnology firms globally.

By Zaven Boyrazian. Veeva Systems (NYSE:VEEV) is a little-known enterprise providing the backbone to one of the most critical industries worldwide – healthcare. The firm offers cloud-based software solutions and services for life science companies, enabling the research, development and commercialisation of medicines.

The increasingly complex regulatory environment has made it difficult for competition to arise, enabling Veeva to become industry-standard. And that’s translated into impressive double-digit revenue and profit growth.

With investments in the healthcare sector steadily ramping up, demand for the group’s technology isn’t likely to disappear any time soon. That’s why it’s not surprising that the stock doesn’t trade at a cheap valuation.

The share price premium opens the door to volatility should short any short-term hiccups arise. However, the long-term potential for this business is ginormous, in my opinion. And that justifies the lofty price tag in my mind, hence why I believe it’s one of the best US stocks to buy in December.

Zaven Boyrazian owns shares in Veeva Systems.

Altria

What it does: Altria is a leading US tobacco manufacturing and marketing company whose brands include Marlboro

By Christopher Ruane. One of the US stocks I have added to my portfolio in recent months is Altria (NYSE: MO). If I had spare cash to invest in December, I would buy more of the shares for my portfolio.

The dividend yield of 8.4% is juicy. But it does deflect attention from a core question: how sustainable is the business? Declining cigarette sales are a risk to profits.

But Altria has other sources of income, like its stake of roughly 10% in Budweiser producer Anheuser-Busch InBev.

Meanwhile, Altria’s portfolio of premium tobacco brands gives it significant pricing power. Revenue decline in the first nine months of the year was 3.9% compared to the same period in 2021. The company remains highly profitable. It has spent $1.5bn on share repurchases and $4.9bn on dividends so far this year.

Even as sales continue their long-term decline, I expect Altria to keep producing strong earnings.

Christopher Ruane owns shares in Altria.

Alphabet

What it does: Alphabet is one of the world’s biggest tech conglomerates and is the parent company of Google and YouTube.

By John Choong. Tech stocks have been crushed this year, and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is no exception. However, its historically low earnings multiples indicate that its stock could be massively undervalued. With a P/E of 17 and a PEG ratio of 0.2, this could be a once-in-a-lifetime opportunity for me to snatch up Alphabet stock at such a cheap price.

Additionally, the company’s innovations in Search and YouTube present it with plenty of momentum to capitalise on grow in the long term. More lucratively, its Cloud segment continues to grow and snatch market share from Microsoft and Amazon, which presents further upside potential.

It’s worth noting, however, that Alphabet’s costs are running rampant. The tech giant continues to increase its headcount despite inflationary pressures eating into its bottom line, which has disappointed investors. Nevertheless, I’m confident in CFO Ruth Porat’s ability to manage capital efficiently moving forward given its impeccable balance sheet. After all, it’s got an average’ buy’ rating with an average price target of $129.

John Choong has positions in Alphabet.

Amazon

What it does: Amazon.com Inc is a US-based technology giant focusing on e-commerce, cloud computing, online advertising, digital streaming and AI.

By Paul Summers: It seems like everyone and their dog hates big tech stocks right now. Amazon (NASDAQ: AMZN) is one of the biggest casualties. As I type, shares are down 44% year-to-date. That flicks my contrarian switch. 

To be sure, higher interest rates and soaring inflation aren’t doing the retail juggernaut any favours. Lower-than-expected guidance on net sales in the fourth quarter further compounded investors’ misery.

Fortunately, I don’t need to worry about the next few months as a potential long-term investor. Amazon has such a dominant hold in its various markets – particularly highly profitable cloud computing – that it’s only a matter of time before sentiment reverses. News that inflation has peaked could be the catalyst, especially if the Federal Reserve rows back on further rate rises. 

Having been too expensive for me in the past, Amazon stock looks like a great candidate for my growth-focused portfolio.

Paul Summers has no position in Amazon.com Inc.

Berkshire Hathaway

What it does: The company is a conglomerate that acquires businesses using cash generated through its insurance operations.

By Stephen Wright. Looking for a top US stock to buy in December, the choice isn’t difficult for me. Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is a business like no other.

Berkshire is a collection of smaller businesses, including insurance companies, railroads, and utilities operations.

What impresses me most is the culture of the organisation. This comes down to two things.

The first is its decentralised culture. This empowers managers of individual subsidiaries, who know their businesses the best.

The second is the company’s disciplined financial approach. This enables Berkshire to avoid catastrophic insurance losses.

These two features sound basic, but they set the company apart from others. They’re the reason that the company has been so successful and why I think this will continue.

Right now, the shares trade at what I consider to be a decent valuation. I’ll be looking to add to my investment in December.

Stephen Wright owns shares in Berkshire Hathaway.

The post Best US stocks for December appeared first on The Motley Fool UK.

But has this actually created fantastic buying opportunities for my portfolio? Let’s explore two potential ‘monster’ investments for the long term.

A future king in e-commerce?

The rising popularity of online shopping today is hardly a secret at this stage. And that’s why Etsy (NASDAQ:ETSY) has caught my attention. Instead of competing directly with other e-commerce giants like Amazon or Shopify, this business focuses on the market niches most tend to ignore. I’m talking about the artisans, crafts, and vintage-goods segments.

Looking at its share price in recent months, it may not seem like things are going well. After all, this growth stock is down almost 50% since late November. But when looking at the underlying business, some exciting progress emerges.

The group has recently made acquisitions that add exposure to the social commerce market. According to Grand View Research, this represents a potential $3.4trn industry by 2028. And given Etsy is currently only a $20bn company, the room for growth seems explosive.

The rising level of competition, and steady recovery from the pandemic, could potentially lead to a slowdown. In fact, fears of growth stagnating seem to have caused the stock to plummet recently. While there is some merit to this concern, I personally believe Etsy is in a strong position to overcome these challenges. Therefore, to me, the falling price looks like an excellent buying opportunity for my portfolio.

Growth stock behind the pharma industry

Veeva Systems (NYSE:VEEV) has seen a similar tumble to Etsy in recent months, bringing its 12-month performance to a disappointing -17% return. The company provides a cloud-based customer relationship management suite for the pharmaceutical and biotechnology industries. But the platform goes beyond the basics, with additional tools for clinical data analysis, regulatory compliance, and trial evaluations.

With demand for such services skyrocketing in the race for a Covid-19 vaccine, Veeva’s revenue jumped 33% between January 2020 and 2021. What’s more, looking at its half-year report, revenues have continued to grow by an impressive 29% versus analyst expectations of 25%. In my experience, a company that can consistently beat expectations is the hallmark of a potential monster growth stock.

The complexity of the drug development industry seems to have created organic barriers to entry against disruptive start-ups. This has proven to be quite valuable in staying on top. But it’s also a double-edged sword. With so many pharmaceutical companies relying on Veeva’s technology, clients could leave en masse if its compliance solutions fail to keep up with changing regulations. The same applies to its analytical toolkits. Retaining customers could become far more challenging if a competitor can provide better technology.

So far, Veeva Systems seems to be thriving, despite what the share price would indicate. As such, I believe now could be the perfect time to increase my position within this growth stock.

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