For Immediate Release

Chicago, IL – August 20, 2024 – Zacks Equity Research shares ServiceNow NOW as the Bull of the Day and Delta Air Lines DAL as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Barrick Gold Corp. GOLD, Franco-Nevada Corp. FNV and Kinross Gold Corp. KGC.

Here is a synopsis of all five stocks.

Bull of the Day:

What Does ServiceNow Do?

Zacks Rank #1 (Strong Buy) stock ServiceNow is a software platform provider that offers solutions for enterprise service management (ESM). The ServiceNow platform empowers companies to simplify and automate a range of business operations with an emphasis on IT services while also branching out into fields such as resources, customer support, security, and beyond.

Software Is “Eating the World”

Silicon Valley legend Marc Andreessen is an American businessman and software engineer most famous for co-founding Netscape, one of the first widely used internet browsers. Since then, Andreessen’s venture capital firm has become one of the most influential investment firms in the world.

In a 2011 Wall Street Journal piece, Marc Andreessen proclaimed that “software is eating the world.” The statement encapsulates the idea that software, in the form of computer programs and algorithms, is becoming increasingly integral to and influential in almost every sector of the economy. The rise of digital technology and the ubiquity of the internet have enabled software to reshape traditional industries, disrupt established business models, and redefine how we work, communicate, and consume.

From an investor perspective, the long-term returns have been phenomenal. For example, the iShares Software ETF, which tracks a basket of North American software stocks, is up +962.10% over the past 15 years, dwarfing the +612.80% returns the S&P 500 Index accrued. However, year-to-date returns are less impressive, with IGV’s 8.93% lagging behind the S&P 500’s 17.87% return.

Is Software Still King?

The essence of the “software is eating the world” quote lies in the notion that software is not confined to the tech sector but is now a fundamental driver of innovation and efficiency across diverse fields, from healthcare and finance to transportation and entertainment. The predictive quote has come to fruition in the years since Andreessen boldly predicted the onset of software. You would be hard-pressed to walk into any Fortune 500 company without seeing multiple software layers, from HR to organizational and planning software.

Within the software industry, ServiceNow is uniquely positioned to benefit for three significant reasons, including:

1. ServiceNow Benefits from Automation & Cost-Cutting Measures

For those who have paid close attention to the employment market, the fight for higher wages is backfiring in several industries. Though the U.S. minimum wage is $7.25, some states have raised the minimum wage much higher due to political pressure. For instance, the minimum wage in California has ballooned to $16 per hour for all employers, regardless of size.

The impact can be seen in many fast-casual restaurants and national chains. Starbucks, whose stock has risen for more than a decade as the coffee kingpin has consistently beat earnings, has stagnated in recent years and may be a candidate for automation and cost cutting. The stock has retreated from its all-time highs in 2021, and the normally consistent earnings winner has missed Zacks Consensus EPS estimates in five of the past eleven quarters.

Increasing input costs such as wages, real estate, and food costs are causing companies to turn to automation to cut costs. Starbucks is likely to move in the direction of automation because it just hired former ChipotleCEO Brian Niccol. Niccol, who turned around Taco Bell, was in the process of starting an automation program in CMG locations before he moved to Starbucks.

With little other choice to grow earnings at SBUX, I predict Niccol will do the same in his new post. Furthermore, supermarkets like Whole Foods Markets have invested significantly in self-checkout kiosks. Meanwhile, if you walk into most McDonald's locations, you will likely be met with a mostly automated experience. While I used the food industry as an example, this race for automation is taking hold across all industries, as evident by recent earnings surprise history.

2. Shift to Work from Home

As of August 2023, ~12% of U.S. workers are fully remote, while nearly 5 million have a hybrid work schedule. ServiceNow’s suite of products should be in demand for the foreseeable future as Fortune 500 companies leverage its technology to ensure employees are efficient and are on the same page.

3. Lower Interest Rates are Bullish for Software

Much of the software industry’s poor performance over the past year can be traced to a “hawkish” Federal Reserve. Higher rates cap economic activity and discourage consumers and businesses from spending more. For software companies, lower rates can translate to increased demand for their products and services as businesses invest in new software to improve operations. Meanwhile, consumers tend to spend more on technology-related goods and services. Finally, lower interest rates generally lead to higher valuations for tech stocks. Investors are pricing in an almost guaranteed rate cut in September, November, and December.

Beyond the catalysts mentioned, ServiceNow has a pristine balance sheet and delivers hockey stick-like top-and-bottom line growth.

Bottom Line

Workday, a software enterprise leader, is poised to benefit from work-from-home and automation trends in the software industry. Moreover, the company should benefit handsomely from a “dovish” Federal Reserve.

Bear of the Day:

Delta Airlines Company Overview

Zacks Rank #5 (Strong Sell) stock Delta Air Lines is known for its travel services for both passengers and cargo. Delta, the second-largest U.S. airline, links customers to locations in the United States and worldwide.

The company follows a “hub and spoke system” with hubs located in cities such as Atalanta and New York. Delta offers a range of seating options and amenities through its “SkyTeam” alliance partnerships. The airline is also renowned for its customer rewards program, SkyMiles Delta.

The Inherent Unpredictability of Airline Stocks

Warren Buffett, the most successful value investor of all-time, once quipped, “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.”

As the COVID-19 pandemic reared its ugly head in 2020, Buffett was forced to panic sell $10 billion worth of Delta, American, United Airlines and Southwest Airlinesstock. Though Buffett made the mistake of buying airlines in 2016, like every great investor, he learned from his mistake, cut his losses, licked his wounds, and moved on.

Below are five reasons the airline industry is as unpredictable as ever.

1. High Fuel Costs are Bearish for Delta

OPEC’s ongoing production cuts have caused high fuel costs. Because fuel costs are a major input for Delta, the company has suffered lower margins as energy prices have increased.

2. Geopolitical Tensions Hurt Airline Industry

Rising geopolitical tensions in Europe and the Middle East present a major “Black Swan” threat to the travel industry should global war escalate further.

3. Delta Suffers From Price Wars with Low-Cost Carriers

Weak pricing power is hurting Delta’s EPS. Discount carriers like Spirit Airlinescurrently have excess seats available, causing them to lower fares and steal business from larger airlines like Delta.

4. Rising Costs Ex Energy

In addition to rising fuel expenses, DAL is also burdened with rising non-energy costs. For instance, salaries and related costs jumped 12%. Though rising salaries are not bearish by themselves, I see them as a negative when the stock is performing the way that it has.

5. Unknowns: IT Outage, Boeing Issues

The global IT outage blamed on CrowdStrike impacted Delta dramatically, causing the cancellation of thousands of flights. Meanwhile, another unforeseen issue is that Delta has several Boeing airplanes in its fleet. Boeing planes have seen a plethora of mechanical and safety issues over the past few years.

Delta Bear Thesis Continued:

Weak Technical Picture

Delta is exhibiting troubling relative weakness. The stock is flat for the year, while the S&P 500 is up nearly 18%.

Negative ESP Score

Zacks in-house studies prove that when a stock has a negative Earnings Surprise Prediction (ESP) score combined with a Zacks Rank #3 or worse, like Delta does, the stock tends to underperform over the next year.

Weak Consumer

Strength in lending stocks like UpStart shows that the average U.S. consumer is weak.

Bottom Line

The airline industry is notoriously unpredictable. Rising fuel costs and cutthroat competition make Delta stock and avoid.

Additional content:

Buy 3 Mining Stocks for Gold’s Bullish Run: GOLD, FNV, KGC

Gold prices plunged below the $1,650 mark in 2022, only to gain momentum in 2023 amid recession disquiets. Gold prices settled above $2000 an ounce last year, and registered 28 record-highs this year.

Following a choppy trading session over the previous two weeks, gold prices surged to an all-time high on Aug 16, topping $2,500 an ounce, and gaining more than 20% this year.

Higher demand for gold from central banks, growing Federal Reserve rate-cut expectations, and geopolitical uncertainties have jacked up the price of the bullion metal, with many market participants estimating gold prices to soar well over $3000 an ounce by the end of 2025.

Central Banks Boost Demand for Gold

The demand for gold by central banks worldwide has increased significantly over the past five-year period. Almost 1 out of 10 ounces of gold produced by the mining industry is now being bought by global central banks, per Bullion Vault’s research director, Adrian Ash.

The total value of gold held by central banks, mostly in China, India and Russia has climbed seven times to $2.4 trillion since 2004, added Ash. China, in particular, bought gold for 18 straight months up to May 2024, but demand for the yellow metal has also increased among smaller countries like Poland and Turkey.

Lower Interest Rate Environment

The recent discouraging data from the U.S. housing market reinforced expectations of a swift implementation of interest rate cuts to boost economic growth. Residential construction in the United States slowed down in July, with housing starts and building permits declining.

Meanwhile, with inflationary pressure subsiding, Fed officials would certainly be wary of keeping an aggressive monetary policy in place for a longer than obligatory period.

Thus, in a low-interest rate scenario, money is expected to flow out of high-yielding fixed-income investments and into gold.

Middle East Tensions

Unrest in the Middle East further bolstered the demand for the bullion metal since gold is generally perceived as a safe haven, unlike riskier assets such as stocks and bitcoin.

Volatility is expected to spike across global equity markets as the Gaza war rages on and nations fail to make headway, raising concerns of a wider spillover.

Gold Glitters, So Does Mining Stocks: GOLD, FNV, KGC

With the price of the yellow metal scaling upward, the profit margins of gold mining stocks such as Barrick Gold Corp., Franco-Nevada Corp. and Kinross Gold Corp. are expected to improve. Thus, astute investors should place bets on them. These stocks, currently, possess a Zacks Rank #2 (Buy).

Barrick Gold

Barrick Gold is one of the largest gold mining companies in the world and has operations in the United States as well.

The Zacks Consensus Estimate for GOLD’s current-year earnings has increased 14.2% over the past 60 days. The company’s expected earnings growth for the current year is 44.1%.

Franco-Nevada

Franco-Nevada functions as a gold-fixated royalty and stream company. FNV has numerous energy assets worldwide, including the United States.

The Zacks Consensus Estimate for FNV’s current-year earnings has increased 1.6% over the past 60 days. The company’s expected earnings growth for the next quarter and year is 2.2% and 11.1%, respectively.

Kinross Gold

Kinross Gold explores gold mines and has major assets in the United States and Canada.

The Zacks Consensus Estimate for KGC’s current-year earnings has increased 9.6% over the past 60 days. The company’s expected earnings growth for the current year is 29.6%.

Shares of Barrick Gold, Franco-Nevada and Kinross Gold have gained 9%, 9.9%, and 51.6%, respectively, so far this year.

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