Could Software Be a Safer Investment than Consumer Staples?

Why traditional software business evolving toward a recurring revenue model is blurring the lines between safety & growth

The Evolution of “Safety” in Investing

At Polen Capital, we seek first to preserve and then grow our clients’ capital. Therefore, our portfolios have an allocation to what we refer to as “safety” businesses. We define “safety” businesses as those we consider to be less affected by economic conditions and offer stable earnings growth. Thus, their stock prices are generally more resilient amid market declines, in our experience.

Historically, we have often found these “safety” investments in the classic recession-resistant sectors like consumer staples. However, more recently, software subscription businesses appear to be taking on the same “safety” characteristics but with arguably more sustainable growth. Meanwhile, consumer staples companies have experienced slower growth and more competition and may even offer fewer safety characteristics than in years past.

Scroll through the charts below to learn why:

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Why it matters:

  • The traditional software business model has significantly evolved toward a subscription-based model, which, for some companies, has resulted in stronger business economics and resiliency.
  • We believe software companies have become even more mission critical to their customers both professionally and personally, especially in an accelerated digital-first environment.
  • Ultimately, select software companies could offer stability and principal protection during difficult market environments and potentially higher levels of sustainable growth.

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Learn more in our recent New Safeties thought piece →

Important Disclosures

The information in this document is provided for informational purposes only. Opinions and views expressed constitute the judgment of Polen Capital as of the date of this document, may involve a number of assumptions and estimates which are not guaranteed, and are subject to change without notice. Although the information and any opinions or views given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. The views and strategies described may not be suitable for all clients. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. This document does not identify all the risks (direct or indirect) or other considerations which might be material when entering any financial transaction.

The information provided should not be construed as a recommendation to purchase, hold or sell any particular security. There is no assurance that any securities discussed herein will remain in the portfolio or that the securities sold will not be repurchased at the time you receive this video. The securities discussed do not represent the entire portfolio. Actual holdings will vary depending on the size of the account, cash flows, and restrictions. It should not be assumed that any of the securities, transactions, or holdings discussed will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. A complete list of our past specific recommendations for the last year is available upon request. “Unbundling Proctor & Gamble” infographic was sourced from https://www.cbinsights.com/research/disrupting-procter-gamble-cpg-startups/.