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As I said at the time, I think this is one of the better plays on the $160 billion cloud computing sector.
Please don’t worry. I’m not here today to repeat the same recommendation.
But I would be remiss if I didn’t tell you that savvy tech investors need to look at the flip side of the Microsoft coin.
And it has something to do with one of my dad’s old sayings. See, he was frustrated with me because I was a bit of a troublemaker in high school and ran with a rough crowd.
“Michael,” he used to say, “always remember that people judge you by the company you keep.”
That’s why when I scan for market-crushing tech leaders, I always keep an eye out for those that have strong alliances.
Plain and Simple Profits
Now then, before I reveal the market-crushing tech leader I have in mind for you today, I’d like to share another anecdote that will help set the stage.
Back in the 1980s, I was a banking analyst in San Francisco. That’s how I happened upon interviewing Carl Reichardt, the CEO of Wells Fargo.
In one of my questions to him, I indicated that I thought the company might be a little, well, boring. To which he replied:
“If making a lot of money is plain vanilla, color me plain vanilla.”
Here’s why I’m sharing that memory with you. Most folks would find the global information technology (IT) services kind of dull. It’s all back-office stuff filled with technical jargon.
Sounds pretty plain vanilla, right?
But this market is enormous – and highly lucrative. Gartner estimates it’s worth a whopping $3.5 trillion a year.
So, while they may not be a household name, every savvy tech investor needs to know about the leader in this industry: ServiceNow Inc. (NOW).
They provide services that are vital for keeping modern companies running their backend systems smoothly. That’s especially true as thousands of companies move much of their data and applications to the cloud.
This move is only accelerating, as companies worldwide are adapting to more and more people working from home.
ServiceNow offers a full-service IT environment that unifies everything from operations and asset management, to security and risk compliance, to developing new apps in house.
In other words, ServiceNow keeps very good company. But the biggest and best friend they have is one of the best plays in cloud computing: Microsoft.
A Strategy for Success
Under recent deals between the two, ServiceNow practically gets to share in Microsoft’s success.
Here’s what I mean. ServiceNow has agreed to host all its services on Microsoft’s Azure cloud platform.
In turn, Microsoft is moving ServiceNow up to “key strategic partner” status.
Even better, the tech giant is adopting ServiceNow’s IT and employee experience products across the company to improve Microsoft’s operations and its employee experience.
In short, ServiceNow is helping Microsoft’s employees focus on their job, not paperwork, turning their company into a more limber tech giant.
Now, ServiceNow’s stock price has been a bit of a rollercoaster recently. On October 22 the company announced that its then-CEO, John Donahoe, was leaving to run Nike Inc. (NKE).
Under Donahoe’s leadership, ServiceNow’s stock had risen 161%, so traders were worried any replacement would be a downgrade. Shares fell 15% overnight.
But the new CEO, Bill McDermott, proved his critics wrong. And then some.
From the beginning of his tenure to the February 19 coronavirus correction, ServiceNow shares rose 54%. Suffice it to say that McDermott has convinced his doubters on Wall Street.
And it’s no wonder. Before becoming ServiceNow’s CEO, McDermott worked for 17 years at SAP SE (SAP), a Germany-based global IT company. In 2010 he became the company’s co-CEO, and four years later he was promoted to being the only one.
As a long-time leader of a $142 billion global company, McDermott knew the kinds of issues that large businesses run into when dealing with IT systems, employee portals, and security. And after 17 years in the industry, he also knew exactly how to run a company like ServiceNow.
Far from a downgrade, he’s proven to be the perfect fit. I think that puts ServiceNow is in the pole position to double in price from here.
The Money-Doubling Outlook
Look, over the past three years, ServiceNow has grown earnings per share by an average of 68% a year. We won’t know whether they can keep that up amid the coronavirus pandemic until April 29, when they report quarterly earnings.
So let’s make a conservative forecast in the meantime, just in case they’ve been hit hard by the pandemic – something I’m not convinced is true. Let’s say that their earnings growth goes down 60% this year, to 27%.
Even at that rate, the stock would double in just two-and-a-half years. And remember, that’s a very conservative case.
With more and more companies moving to the cloud and to remote work, ServiceNow may be seeing an uptick in business.
In other words, this is a great investment for the long haul.
So, at the very least, put NOW on your watchlist of tech stocks that can help build your wealth for years to come.
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Cheers and good investing,
Michael A. Robinson