stocks, bonds, ETFs, straight out of downtown Chicago. This is Zach's Market Edge. Welcome to Zach's Market Edge, the podcast about investing in your life on your host, Tracy Rynick. And this week I'm going solo to talk about the software stocks once again.
We did look at these stocks a couple of weeks ago, but before everything happened with the Iran War, so I wanted to look at them again. Are they values or are they traps? We've gotten the earnings in on these stocks as well. So at least we have some guidance and earnings did help the group.
We had a lot of CEOs out there either buying the shares in support or they were just giving interviews talking about how AI is not going to destroy their business. That seemed to have worked for a little while, but now that it's in the rear view mirror by a week or two or three, now we're starting to get some doubts creep back in. We're starting to see a little bit of selling again in some of these names. So I did want to take a closer look at the charts and look at what is going on with the earnings estimates because when we last looked before the recent earnings reports, it looked like these were values, not traps.
The earnings were holding up. So what was the problem? Just kind of a freak out by the stock market and traders and investors that the earnings were not going to hold up, at least in the longer period through the end of the year and into 2027. So let's take a look.
These are some of the stocks we've talked about in the past. I think I've added at least one new one because I was kind of curious what was going on with it. But let's take a look first at the charts on some of these software stocks. And I'm going to list them right here for those of you who just want to know upfront what you're getting into service now.
We're going to cover that. Salesforce, Palantir, Adobe, and AppLovin. So these are some of the bigger names. Many of you own these or want to own them.
So let's take a look. Okay, on the chart, that's what we're going to look at first. I put them all on the screen together here. And this is the, let me scroll down, one year chart here.
So you can see some stories are better than others. Palantir, still holding up on the one year, still up 59%, although it's off of its highs. Palantir, still up 26% in the last year. So that's March of 2025.
So that was right around Liberation Day sell off. What's going on, perhaps? And so we did get a rally off of Liberation Day and these stacks are kind of showing that. And you can see it here in the chart in April, once Liberation Day worries past, we did get this big rally well into the summertime, basically, in all of these software stocks.
But then a couple of them couldn't hold on. And these are the ones we've all been talking about. Sales now, Salesforce, Adobe, those are all down in the last year and significantly. Adobe, the worst performer, down 39.5%, as you can see here on the chart, service now, not that much better, down 37 and Salesforce down 35.
So they're all kind of moving it together in the same direction. And it's even basically the charts are on top of each other, starting in 2026 for those three stacks. So the market is considering Palantir and App 11 to be a little bit different situation with their business. Palantir should be benefiting perhaps by what is going on in the Middle East as they might be more demand there for government to be involved in what Palantir is doing.
So we have seen the stocks with that and App 11 on the advertising size holding up. But what does it look like year to date? So we care more about the more recent because that's what we've been tracking and clicking on that chart. And you can see all five are in the red year to date.
Palantir off of the recent rally that we have had is the best performer down just 7.9% year to date. But the other four are looking pretty grim. The worst performer is App 11, surprisingly. Advertising holding up, but maybe not.
App 11 down 30% year to date. Adobe 28, also service now 28, and then Salesforce 27. That's what I mean about those three all moving together. So it's not really about the business when I see a chart like that.
It really is just, oh, these are software. They're at the enterprise level. It's going to be just switching over to AI. I won't need this software anymore because I'm going to be using chat GPT or Claude or Gemini or these other products.
And so I won't be buying this software package anymore. But all of these companies are employing their own AI into their own software. So I think we're still at the same place of we don't know yet all the impacts from AI. I wanted to look at the one month chart because this is going to reflect the around war and you can see Palantir is the best performer up 21%.
App 11, up 16. So service now is up three Salesforce trying to hold on, but up 0.3%. And then Adobe back into the red in just the last month. But it is down off of its rally.
These all did try to rally on their earnings, but down another 5.5%. That's why I wanted to look at these stocks because they seem to be having a relief rally around the earnings reports. But now they seem to be giving up a bit of it here as we move away from those earnings and the fears of AI return. So that didn't take long.
I'm looking at the five day chart here because this is also what I mean about some weakness coming back in now. Palantir down 0.3 or 0.2% in the five days. And I'm recording this on March 24th. Adobe down 5.9 Salesforce down 5.9.
App 11 down 7 and service now down 9.4. So these are all going in the wrong direction just in the last week. Doesn't mean they're always going to go that way, but they are heading in the wrong place. And just looking at that one year again, well, you can't really tell off that.
Let's look at the six months. It's going to give us part of last year and then this year. And you can see some of these stocks seem to be heading towards those lows again, especially service now. Not so much, well, Adobe is as well.
Adobe's at new lows looks like. So we have some of them breaking down again. But are these values? Should we be considering them?
I think we concluded on the last podcast I did on these stocks that while they had had the big sell off and they were cheaper than what they had been previously, the earnings were going in the right direction. The earnings were still showing it up. So they weren't really traps, but they weren't really values. So what is happening now?
Let's start off with service now. And I'm bringing up the quote page now. We're getting off the charts. And it's a three.
So that's a hold. That's not a surprise. And then just looking at the price, consensus and surprise chart, this is normally what I would want to see up into the right on earnings. We're not seeing any cuts here.
If anything, we're seeing raises, especially for 27. So this doesn't look like it's weakening any. I'm going to scroll down and kind of see what's happening on this quote page. You can see what the analysts are all doing.
So for this year, we have 11 estimates up. We have just one is down and six are up for next year and just one down. And then we do have earnings moving higher still for service now, looking at 412, 60 days go 403 for 20, 27, 495, 60 days ago, 479. So we don't see anything collapsing here, but the market still believes that it's going to.
We still have earnings growth, 17.4% expected for this year and 20.1 for 2027. That's coming off of 26.3 for 2025. So the number of P is now 26.9. Is that cheap enough?
That is off of what we had been seeing. Peg of just 1.1. And then if you scroll all the way down, you get this value scorecard that pops up. So I like to look at this.
We are, of course, these are software stocks and they are growth stocks expecting high price to sales and high price to book. Price to sales is at 8.7, but that has come down as well off of the highs. So this is looking a little more attractive. It's not a trap based on what this is showing.
Remember, a trap is when those earnings are expected to decline and they're cutting those earnings estimates and they're not. They're raising it. Forward PE 26.9 is that the value here. It is under 30, which I do find more attractive for a growth stock like this.
It's cheaper than some of the AI infrastructure stocks, that's for sure. But the negativity around it is so strong right now and it looks like returning, unfortunately, that maybe we'll see the stock even retreat to these 2022 levels. I'm a value investor, so I like to see getting a pure value for my purchase, if I could. And that would be a PE definitely in the teens would get me there and a peg under one would definitely get me there.
But this is still a growth stock, so maybe we're not getting down there. But value stocks are when someone, the street decides that certain industry or sector is out of favor. And right now the software stocks are still out of favor. So it's starting to go in that value territory.
But I'm keeping it on my watch list for now because it still hasn't retested the 2026 levels here on ServiceNow ticker NOWW, but looking pretty interesting if we can get a cheaper. So let's switch over to Salesforce. CRM, they've been very vocal of, you know, the sell off is overdone. We're not seeing a decline on earnings and looking at price consensus and price.
It's also a number three on the rank. And you can see again, just like ServiceNow up into the right, very nice growth. And we don't see any real cuts here for 2026, 2027 on the visual, the visual look. But the stack is seemingly getting cheaper.
So, but what do we have? Oh, this is interesting. So we have earnings growth for this fiscal year, which is the 27 fiscal year, a 4.8%. That is down from 22.8 last year.
So that's what people aren't liking that we had that big mega growth. But now we still have some growth, but it's way lower. Even 2028 at 12% is not back to the prior year highs. So this is where the nervousness gets in, but you've got to get it cheap enough.
So for repeat is now 14.8 with a peg of 1.05. Those are very close, if not in value territory now. So, we see 12 revisions higher for this year, just two lower, five higher for next year, just two lower. Then we have the earnings going in the right direction, 1312 expected for this year up from 1299.
1469 up from 1455 for next year. So we're not seeing bearishness really on the estimates. And that's what I like to see. Price to sales is now down to 4.3.
That's not a value. You'd have to be under one to get it true value. But this is pretty cheap for stock that is considered to be a gross stock and the price of book right at my value level of three. So this is a cheaper one.
It is a value. It doesn't look like a trap right here, but it doesn't mean we too won't test these 2022 lows. We're not that far off of it. Looks like it's a little bit below 140.
We are under 200 here at 183 on the day we're recording this on March 24th. So I'm keeping my eye on these. I have been the whole time. I like to get them to cheap if it's going to turn into a value stack with 4% earnings growth expected, then I'm not going to settle for just 15 times on the PE.
I want to get it at 10 times. That's my new goal. I just made it up right here. I'm going to be watching the stock till we get down there at 10 times, but Salesforce CRM looking like it could be a value here.
Okay, Palantir, what's going on with them? They've always been expensive. So we're just looking to see, is this a kind of a deal here? What's happening with the stock?
It hasn't pulled back as much as some of the others. It's a three as well. A three, which is the hold, no biggie on the hold category. We have up and to the right and we have some pretty strong up and to the right.
Look at that little decline there recently. And then 2027, maybe not a decline, but going straight across. So nobody's really raising there, but we have tremendous growth still expected. We had 82.9 for 2025, 2026, 74.7, and then it's getting more normal in the normal range for 20, 27 of 45%.
But what is happening with those? Are we seeing any cuts? No, not in recent. Full year 10 up next year, four up doesn't say anything is down.
So the analysts are all in agreement. So the visual is lying to me. The visual kind of showed maybe a little bit of a decline there, but no, we're looking for 131 up from 104 in the last 60 days, and then 190 up from 139 in the last 60 days. So we're still looking like there's no trap here, but what about valuations?
Forward P is 122, PEG is in two bad, 2.5. That's not as stretched as the PE is. And then price of sales 85 times. So you are paying extraordinary amounts for their sales, for this revenue, and for the earnings.
So it's never been a cheap stock. Shares are off their 20, 26 highs, but they have rallied off of those recent lows. So it's not a trap, but it's still just not a value. And it hasn't really gotten cheaper enough for me to want to get in.
But if you're a growth stock, any kind of pool back here is seemingly a buying opportunity if you really want this stock because you are getting a cheaper, you are paying up for those earnings and revenue. But that's what being a growth investor is all about, and this growth is going in the right direction still. So it's Palantir, PLTR, not a value, but it never was, but not a trap either. So growth investors keep it on your watch list.
Adobe, that's the other big one. We've all been worrying about right because that has been hitting those new lows, as I mentioned earlier. And look at that chart on the actual stock side. It's terrible because you're at the five year lows now.
But look at the earnings. Up into the right, nothing is being cut really here. Let's look real quick. No, we do have some cuts on this one.
Six or higher, three are lower for the this year. Seven are higher, five are lower for next year. But the overall earnings are still inching up just slightly. So this year, 2350, that's up from 2347.
So it's up three cents, but it's still up in the last 30 and 60 days. And then 2027, 2651, that's actually down a few pennies, down one penny from seven days ago and down eight cents from 30 and 60 days. So that's where you get a little bit of the weakening, but it's just a few pennies and they're expected to make $26.51. So that's just some analysts adjusting their estimate.
They're not slashing it as we've seen with like energy or, you know, some of these areas where it's clear earnings are taking a tumble, these cyclical stocks. So what about valuations on Adobe? It's been a value for a while. PE is at 10.5, peg of just 0.8.
It was the darling, but now it's not. And what else price of sales? 4.1. So still kind of stretch their price to book 8.8.
So it has some cheapness in some of its valuations, but not on all. Everybody's just expecting further declines. So that is the definition of value when everybody is throwing it out the baby with the bathwater. It's just being like totally disregarded by the street now.
Nobody wants to own it. Not even sure the insiders are buying it. Have to go look, but number three, it's a hold here. And eventually I'm going to get it at single digit forward PE as a value investor.
This year, earnings expected to be up 12.2 next year, 12.8. It has always been, as you can see, if you're watching the video podcast on the sales and EPS growth rate chart, it's been in the teens since 2023. It's come down a little bit in the last for this year and next compared to the prior three years. But not by much.
These are solid numbers. You might not want to pay a forward PE of 20 or 30 times to get these numbers, but a forward PE of 10.5, maybe you do. So this is a value for now. It doesn't look like a trap, even though a little bit of weakness for next year, but not really.
I'm not calling that a trap at all. So this stock looking like it does fit into the value category, not the trap. So that's Adobe ADBE. I can say it, it's a value as much as I want, but the streets still stay in a way from it.
And for your information, I do not own it in SACS Value Investor Portfolio. I do have it on my watch list, but I like to get in when there's a bit more of a panic and we're not seeing that yet. So that's Adobe. And now we're switching over to AppLovin, our final stock.
I'm doing five stocks this week because there is so much going on with them. AppLovin, ticker APP is a ticker. It's also a number three. So everybody's a number three now that we've gotten all these earnings in.
And you can see up and to the right, on the price consensus and surprise. And the stock still weak, but the earnings look pretty good. Let's scroll down and see what the analysts are doing. So for this year, six are up.
One is down and next year, five are up, zero are down. This is in the last 60 days, it says. And then on the actual earnings itself, 1579 for this year, up from 1514 in the last 60 days. 2097 for next year.
That's a nice jump. That's up from 1930 in the last 60 days. So nobody's thinking things are looking grim on AppLovin's side. The stock earnings growth of 121% last year.
This year, expecting 57 next year, 32%. And so this is truly that big growth story. And that's why the stock hit a new high to start the year. But the nervousness is real.
And this has fallen all the way back. So we now have a forward P of 29 with a peg of just .8 on a growth stock of this magnitude. But this tells you how out of favor they are. What else on the price of sales, it's soaring 26 times, but it's a growth stock price of 72.
But we knew this. We are still getting it cheaper here, even though it's up off the recent sell off lows. But it is going in the wrong direction a bit again. So if we test that level down there around 400, then maybe this gets interesting or we test the liberation day lows in 2025.
But that's a little over 200. So we have to see quite significant more selling here. 431 is what it's at on March 24th when I'm recording this. So we're looking at that earlier in the year lows as the next key level here.
But no trap, no value, but we got a nice growth stock that could be getting cheaper. So again, I'm keeping this on my watch list. So what do we have here now? We have service now.
It's not quite cheap enough for me. It's getting there. It's close, but not quite cheap. But no trap.
None of these are traps. So we have no traps on these five software stocks and tech names. And we have some value. Adobe is a value by even classical definitions.
I do think service now is heading close. Salesforce is looking very much like a value stock, even on classical valuations. Palantir is not at 122 times. Apple oven is not.
These are still cheaper than what they have been in the last two years, but they're not classic value stocks by any means. But that's OK. If you're a growth investor, they are cheaper. Is this buying opportunity?
Like I said, on any of these, I don't like it that we're now giving up of some of the recent gains. Some of the negativity about AI and what it might do to some of these businesses is returning. It fills the void. We can't get rid of it.
So once earning season is over and the CEOs have stopped giving interviews, it's only taking a couple of weeks before the AI is taking over the world's stories return and people get jittery on these stocks once again. We will have further buying opportunities. I always say that in these areas where they get out of favor and then kind of go back in. But then they come back out is that there are always buying opportunities in these stocks.
We will see further pullbacks, which apparently we're seeing right now. So no need to chase any of these. But when you see this kind of feeling in an industry and in a group of stocks like this, that is more of a value play than the growth play. So I would guess that some of these growth stocks that are not cheap yet will get cheaper still.
They may never be classic value stocks as we know them as we look at Adobe or Salesforce and say those are classic values with the low, you know, PE's of 10 or whatnot. But we can still get all of these stocks much cheaper. So I am to bring you some deals out there and what's going on in the sector. It's good to look at what is actually happening with the earnings underneath because we have had the earnings reports coming in.
So now we're going to wait. We're going to wait again for the next earnings reports in Q1 because the jitters are still out there and it might take several more quarters before that turns around. So keep a money watch list. They could get cheaper.
Let me recap the stock tickers now. Service now, ticker, NOW, Salesforce, ticker, CRM, Palantir, ticker, PLTR, Adobe, ADBE, and then we wrap it up with AppLoven, APP, and a little tidbit, something to watch when they get dirt cheap almost like, you know, they're giving it away kind of cheapness. That's when the insiders, the people who work in management at these companies will be like, what is going on? This is nuts.
We're making all this money. I want to buy my shares. And then we'll see the insiders, not just the CEO, the CFO, the directors, the head of human resources, the attorney, the general counsel there. We'll see marketing, you know, various vice presidents, whoever else is under the rules of management.
It does vary by company to company sometimes of who gets in there, the CFO, the chief accountant, various other titles can be in that management group. When they all say enough of this, this is too cheap to pass up, then you know. So I'm keeping them on my watch list. Sometimes we'll get, you know, the CEO's diving in as a confidence buy, but not that much buying in here.
Sometimes they'll do like a huge share buyback with their cash, but I don't find that to be as telling because it's not their cash. It's the company's cash. The shareholders buying those shares. So when the CEOs themselves are putting their own money in, then that is interesting to me.
So keep that on your alerts as well. But again, I'll be watching all of these and you should be too. I aim to bring you all these stocks every week here. And we're going to be talking with some more of my colleagues here about various topics, including our favorite.
Is there going to be a recession soon? So be sure to subscribe. Get us on YouTube. We're on zacks.com slash YouTube on our YouTube channel.
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