It’s the oldest continuously tracked exchange rate in history. The Roman Empire set the ratio at 12:1; centuries later, the United States fixed the ratio at 15:1 with the Mint Act of 1792.
I’m referring to the gold/silver ratio (GSR), which shows how many ounces of silver it takes to buy an ounce of gold. These days, the ratio is in constant flux because the prices of gold and silver themselves fluctuate constantly during the trading day but it still serves as a good indicator.
The analysts at GoldSilver.com point out that, for precious metals investors, the ratio is most valuable at the extremes. A ratio of 80 or higher is an indication that silver would be relatively inexpensive in relation to gold. Indeed, the last three times this happened, silver went on to rally 40%, 300% and 400%, they said. Conversely, a GSR below 20 is an indication that gold is inexpensive relative to silver.
In the article below, contributor Dave Sterman looks at the GSR – among other factors – in giving his take on which precious metal offers the better value at the moment.
— Bob Bogda, Editor
P.S. Like what you see? Don’t like what you see? Let me know.
Sitting through a market pullback is never a pleasant experience. The recent plunge of 2,500 points in the Dow Jones Industrial Average and the double-digit crash in the tech-heavy Nasdaq have caused many investors to worry about their holdings.
This should not be the case. Here’s why…
First, it is normal to see the markets pull back after setting new all-time highs, as both the S&P 500 and Nasdaq 100 did at the end of last month. This allows the big money players to discount new levels of valuation along with any changes in Fed activity, international trade, currency exchanges, etc., that might occur in response to an overheated market.
Second, we are in September – seasonally a weak month – of an election year, no less. Historically, this means we can expect about three more weeks of selling pressure as investors price in political uncertainty heading into the first Tuesday in November.
But third, market pullbacks ought to be times when we scan our stock lists looking for the next big market winners. It is important to do this during periods of market weakness because it is then that the real market leaders show up more clearly. When most stocks are falling, the leaders of the next leg higher demonstrate clear relative strength.
Such is the case for best-of-breed software/cloud play, ServiceNow, Inc. (NOW). As the Nasdaq siphoned off nearly 12% of its gains this year, NOW has held its own, currently trades a mere 7.7% below its all-time high near $500.
ServiceNow was founded in 2004 and went public in 2012. The company delivers enterprise cloud-computing services through its award-winning Now platform, which has as its primary task onboarding enterprises wanting to go fully digital in the way they manage their business and offer services. The ServiceNow Now platform includes digital products for customer service, risk management, online security and encryption, workflow automation, performance analytics, and collaboration and development tools, among other things.
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ServiceNow is exceptionally good at what it does. Over the most recent fiscal year, the company earned $730 million in income on nearly $4 billion in sales, with a five-year annual growth record of a respectable 35.5% on the bottom line (earnings) and 38.4% on the top (sales). The company’s management runs a tight ship. It carries little debt, has seen a return on equity over 35% (which is excellent and suggests efficient and productive management), and the profit margin it works with is the best in class.
Of course, outperformance during a market pullback is no guarantee of outperformance once the market gets back on track. For that, there needs to be a compelling reason to buy shares today given what is expected to happen in the future. For ServiceNow, there is a clear justification: the company’s CEO is not only committed to constant additions and improvements in the array of services offered – last week, the Now Platform launched a completely new set of services – but he has also worked hard to position NOW at the forefront of the biggest Covid-induced revolution in enterprise technology: the digital disruption and transformation of services as companies move more of their operations online.
ServiceNow’s CEO, Bill McDermott, who came on board last November after taking Germany’s SAP to all-time highs, is a true visionary. At last week’s press conference, in which he announced no fewer than six new applications, McDermott argued, “Technology is no longer supporting the business, technology is the business.” What he meant is that most companies today aren’t prepared to meet the Covid-induced disruption to on-site delivery, and that ServiceNow is striving to position itself as the only company that can help these businesses move all their services online using a single platform.
Guess what? ServiceNow is there already. “We are very fortunate at ServiceNow,” CJ Desai, ServiceNow’s chief product officer, said at the same meeting. “We are the critical platform for digital transformation, as our customers are thinking about transforming their companies.”
The pandemic economy has exposed weak links in old value chains, driving a workflow revolution. Organizations that fail digitally to create great experiences for customers, employees, and partners in this new work environment are being left behind. According to International Data Corporation (IDC), 64% of organizations globally are planning to be early adopters of digital onboarding tech. There is only one company that offers this tech together in one platform: ServiceNow. Already 80% of the Fortune-500 companies use the Now Platform. ServiceNow is looking to grab everyone else, whether their workforce is remote and staying that way, or planning an eventual return to the workplace.
“There is unquestionable customer traction [at ServiceNow],” said Stephen Elliot, program vice president, DevOps and Management Software, IDC, “in part accelerated by COVID-19 and its pressure to drive more collaboration between IT and business stakeholders to digitize processes, rethink customer engagement models, and make strategic business decisions faster than at any point in the last 10 years.”
A number of leading organizations including Microsoft, Zoom, Adobe, Uber, Accenture, Deloitte, Acorio, TPx, Novant Health, Lone Star College, AEGIS Insurance Services, and the City of Raleigh are already using a version of the Now Platform and its new release capabilities to power their digital transformations. How many more in the coming months will join them, we can only guess. I’m guessing it will be quite a few.
Action to Take: Consider buying NOW up to a price of $485 with a view to selling at 650 or six months, whichever comes first.
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