Let’s talk about a tiny number.
The sort of number that doesn’t show up on anyone’s radar.
And now yours.
I’m talking about a tech sector whose overall sales grew 3.3% in the third quarter. True, that sounds meaningless – like something you wouldn’t want to invest in.
But I drilled down below the surface, and I found a lot of money to be made from this meager bounce.
Here’s the thing. It’s a small tick on the information technology (IT) services sector’s massive $3.5 trillion base.
When I look closer, I see that most of that growth – billions and billions of dollars of growth – is thanks to global corporations and other huge enterprises moving their IT services to the cloud. Doing that allows them to cut back spending on computer networks and makes it easier to add new services on the fly.
And it gives tech investors a target-rich environment.
So while others ignore the billions of dollars moving around in this often-forgotten part of the tech ecosystem, let’s look what I think will be a hugely profitable way to invest in this massive market.
It’s a company the mainstream financial media virtually ignores.
And it’s going to double your money in two years.
It’s Exciting… Really
You’d be hard pressed to find a quieter tech leader than ServiceNow Inc. (NYSE: NOW).
That’s likely because hardly anyone pays attention to IT services companies besides their customers. After all, the digital “plumbing” found in corporate campuses and skyscrapers is not as exciting as artificial intelligence, cryptocurrencies… or flying cars.
But what ServiceNow does – handling, processing, and automating IT requests – is absolutely crucial for any modern enterprise.
So consider this your opportunity to start paying attention – and making money.
While Wall Street doesn’t totally ignore the company – more than 30 industry analysts cover the stock – ServiceNow remains a largely unknown firm.
Sure, it’s nearly always stellar quarterly reports get covered. But over the last year or so, I’ve seen nary a standalone story about it in The Wall Street Journal, Investor’s Business Daily,or Bloomberg.
Meanwhile, ServiceNow has been steadily growing its profits per share much faster than even Amazon.com Inc. (Nasdaq: AMZN), the leader in cloud hosting.
ServiceNow is no slouch when it comes to sales. In the most recent quarter, they’re up 39.3% year over year. And ServiceNow’s execs forecast that sales will more than double from an estimated $1.9 billion this year to $4 billion by the end of 2020.
This Santa Clara, California-based company has an impressive customer list. It works with everyone from healthcare giant AstraZeneca PLC (NYSE: AZN) to chip leader Broadcom Ltd. (Nasdaq: AVGO) to consumer products titan Kimberly-Clark Corp. (NYSE: KMB).
Like I said, I think ServiceNow is poised – right now – to double your money in just two years.
To figure out why, let’s run it through the five “filters” of Your Tech Wealth Blueprint. These “rules” help us pinpoint the most exciting and fastest-moving opportunities so you can safely capture wealth – and have a better life now and in retirement.
Take a look…
Tech Wealth Rule No. 1: Great Companies Have Great Operations
I’ll never encourage you to invest in a stock unless it’s a well-run firm with top-notch leaders.
ServiceNow CEO John Donahoe is one of the top technology leaders in the country, with a track record to prove it. Prior to joining the firm in February, Donahoe followed Meg Whitman as CEO of eBay Inc. (Nasdaq: EBAY) from April 2008 to July 2015.
During his tenure, eBay’s sales doubled to more than $18 billion. He was kind to shareholders, too – as the stock soared nearly 120% over that same stretch.
He clearly has management skills deep in his DNA. Before joining eBay, Donahoe worked at Bain & Co., a respected management consulting firm focused on Fortune 500 firms, and served as CEO there from 1999 to 2005.
Tech Wealth Rule No. 2: Separate the Signal From the Noise
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
Like I’ve been saying, it would be hard to find a sector with less hype behind it than IT services. Nor is ServiceNow much of a self-promoter itself.
Instead, it’s a fast-moving cloud-centric firm that offers a wide range of products – including human resources, cybersecurity, customer support, and business apps enterprise software – designed to keep improving sales and profit margins, both for itself and its clients.
Those profit margins are becoming increasingly important. That’s because because many of the new young firms – ServiceNow, which got started in 2004, among them – are still losing money as they focus on growth.
But ServiceNow is improving free cash flow and profit margins as it expands its market position. To help get it there, Microsoft Corp. (Nasdaq: MSFT) has become a key partner, building 12 modules for ServiceNow’s cloud platform.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends
We’re always searching for stocks in red-hot sectors because they offer the best chance for life-changing gains.
As noted earlier, the overall IT services market is huge – but it’s slow growing. However, what led me to ServiceNow is digging into the fastest growing, most unstoppable trends within IT services.
It’s cashing in on two trends in particular: platform-as-a-service (PaaS) and IT operations management (ITOM), which could be a combined $53 billion market by 2027.
So ServiceNow’s projected $4 billion in sales in 2020 may be a lowball estimation.
Tech Wealth Rule No. 4: Focus on Growth
Companies that have the strongest growth rates almost always offer the highest stock returns.
Over the past three years, ServiceNow has grown sales an average of 44%. If that rate holds, sales will double again in a little more than 18 months. So hitting its $4 billion benchmark is entirely achievable.
Then again, this is a firm that keeps finding new routes for growth. It’s moved into performance analytics, security operations, compliance reporting, business app building, and machine learning.
Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money
This is the most important Tech Wealth Blueprint filter for you folks.
After all, we’re here to make money.
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that, we can figure out how long on average it should take for the share price to roughly double.
I’ve gone through the firm’s financial in detail over the past three years the firm has had an astounding average 337% earnings growth. And in this year’s second quarter, it grew earnings by 47%.
So I’m projecting, conservatively, that earnings per share will grow by an average 36% over the next three years.
Now we use what I call my Doubling Calculator. Divide the compound growth rate of 36 into the number 72. We find that it should take almost exactly two years for ServiceNow to give us 100% gains.
With a $20.6 billion market cap, the stock trades at roughly $120. NOW is up 62.5% so far this year. That means it crushed the S&P 500 by more than 4-fold.
But don’t let that quick return scare you off this winner. With so much growth ahead, this is a quality stock with plenty of room to run.
I look forward to seeing you back here in two years – with a lot more money in your pocket.
Meanwhile, I’ll be back next week with more tech wealth-building ideas.
See you then.