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Quarter-End Insights

Our Outlook for the Software Sector

Software stocks for turbulent times.

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With concerns over the near-term performance of the U.S. economy, we think this is an ideal time to call attention to software companies that are well positioned to weather a potential U.S. economic downturn. In our opinion, wide-moat software companies that generate stable revenues and benefit from economies of scale should continue to perform well and perhaps even consolidate their dominance of their respective markets. Companies such as  Autodesk (ADSK) and  Microsoft (MSFT) sell software that is essentially a "must-have" for their customers, and while their near-term growth in the United States may be tempered, revenues and profits are not going to tank. For instance, Autodesk's AutoCAD software is central to  General Motors(GM) ability to design new cars, and to  Nokia's (NOK) ability to design new cell phones. As long as its customers are developing new products, Autodesk should continue to see healthy sales of its products.

Sunit Gogia does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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