Jefferies has called a consolidation phase for European software and technology stocks, a group that includes several London-listed names, after a summer rally erased much of the sector's cheapness.
Analyst Charles Brennan and his team said the 24 companies they track closely were now up 3% for the year, having been down 23% as recently as the spring.
Average share prices across the group rose just 0.5% last week, a pause after a 13% jump the previous fortnight.
Among the London-listed stocks Jefferies covers, the bank has buy ratings on three names and hold ratings on two others.
The Sage Group PLC (LSE:SGE), the FTSE 100 accounting software group, Computacenter PLC (LSE:CCC), a technology reseller and services provider, and GB Group PLC (LSE:GBG), which makes identity-checking software, all carry buy recommendations.
Bytes Technology Group PLC (LSE:BYIT, FRA:9NY, JSE:BYI), a software reseller, and Softcat PLC (LSE:SCT), which supplies IT infrastructure to companies, are both rated hold.
Computacenter has been the strongest performer this year among the resellers Jefferies tracks, while GB Group is the weakest of the software names on its list.
GB Group shares trade at just nine times forecast earnings for the current year, a heavy discount the bank still sees as an opportunity.
Sage changes hands at 22 times, Computacenter at 23 times and Softcat at 27 times, making the last of these the most expensive of the group.
Bytes sits on 20 times earnings, in a results season Jefferies described as unremarkable, with most companies reporting broadly as expected.
The analysts said they had returned from the summer break more focused on the wider economy than on individual company results.
Rising government bond yields were singled out as the main threat, with Jefferies doubting that either economic growth or equity valuations could withstand a sustained move higher.
The bank said the outlook was hard to read, with firm business activity surveys pointing to growth even as Middle East tensions and renewed tariff talk argued for caution.
The sector still trails the wider market, with the Stoxx Europe 600 up 10.5% so far this year.
For now, Jefferies expects software stocks to mark time until the direction of bond yields becomes clearer.
