We recently compiled a list of the 8 Most Profitable Large Cap Stocks To Invest In. In this article, we are going to take a look at where ServiceNow Inc. (NYSE:NOW) stands against the other profitable large cap stocks.
US Stocks Surge as Economic Outlook Brightens
In the second half of 2024, the financial markets are navigating a complex landscape marked by volatility and cautious optimism. Recent reports indicate that the US economy has shown resilience, with growth rates remaining solid despite concerns about inflation and potential recession. Analysts from JPMorgan Asset Management highlight that the US economy has shown strong momentum in recent months, fueled by resilient consumer spending. Analysts suggest that with few excesses in cyclical sectors, the likelihood of a recession triggered by internal factors remains low. Moderate consumer spending is expected to support steady growth into 2025. However, with the upcoming US election, shifting monetary policies, and ongoing geopolitical tensions, there are external risks that could impact this expansion.
On October 9, 2024, US stocks rose for the second consecutive session, with the S&P 500 and Dow Jones Industrial Average closing at record highs. The S&P 500 climbed 0.71% to finish at 5,792.04, while the Nasdaq Composite gained 0.6%, closing at 18,291.62. The Dow surged by 431.63 points, or 1.03%, to settle at 42,512.00 and at a record close. Technology stocks led the rally, reflecting strong investor sentiment despite ongoing geopolitical concerns.
The market’s positive momentum followed the release of minutes from the Federal Reserve’s September meeting, which disclosed a preference among many participants for a larger rate cut. Mike Bailey, director of research at FBB Capital Partners, noted that the Fed’s actions are a key driver behind the market’s performance.
Overall, Wall Street is showing resilience, supported by optimism regarding the Fed’s ability to manage a soft landing for the economy, especially after the September jobs report showed strong growth in the labor market.
In a recent interview on CNBC’s “Closing Bell,” Malcolm Ethridge, managing partner at Capital Area Planning Group, shared his insights on the current state of the markets, particularly regarding mega-cap stocks and the impact of artificial intelligence (AI). Ethridge emphasized that the ongoing bull market, which has seen a remarkable 60% increase over the past two years, is likely to continue, driven primarily by advancements in AI technology. He noted that AI has demonstrated significant staying power, with companies like Microsoft and NVIDIA leading the charge. Ethridge posed an intriguing question: which stock will emerge as the next major player in the ongoing AI arms race?
Ethridge pointed out that mega-cap companies have not relied heavily on borrowing for growth. As the Federal Reserve begins to cut rates, he believes this will enable more companies to issue debt or borrow and invest in AI, potentially fueling further market expansion. He cautioned, however, that historical norms may not apply in this unique economic environment shaped by the COVID-19 pandemic. Overall, Ethridge remains optimistic about mega-cap stocks leading the way.
Methodology
To compile our list of the 8 most profitable large-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined large-cap stocks as those with a market capitalization between $20 billion and $200 billion. Next, we focused on profitability by filtering for stocks that had an estimated 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.
From this initial list of 20 profitable large-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and Macrotrends, which offered information on TTM net income.
Finally, from this list of large-cap stocks that met our criteria, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 most profitable large-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of software engineers at desks working on code for a cutting-edge cloud computing solution.
ServiceNow Inc. (NYSE:NOW)
TTM Net Income: $1.14 Billion
5-Year Net Income CAGR: 233.07%
Number of Hedge Fund Holders: 97
ServiceNow Inc. (NYSE:NOW) is an American software company that specializes in cloud-based solutions for managing digital workflows across various industries. The company provides a comprehensive platform that utilizes artificial intelligence and machine learning to automate and optimize business processes. Its offerings are designed to help organizations improve efficiency, maximize business outcomes, enhance customer experiences, and drive digital transformation.
Through strategic collaborations and continued investment in innovation, the company has become one of the biggest players in the enterprise software market. In 2020, ServiceNow Inc. (NYSE:NOW) introduced an industry solutions strategy that focuses on creating tailored workflows for specific sectors, such as banking and telecommunications. By partnering with major firms like Deloitte and Accenture, the company is working to address unique challenges across various industries, enhancing its value proposition and expanding its market reach.
The company is actively expanding its global presence and enhancing its offerings. ServiceNow Inc. (NYSE:NOW) has announced plans to launch a UAE Cloud, hosted on Microsoft Azure, with a targeted delivery date in the first half of 2025. This new cloud service aims to support both public and private sector organizations in the UAE, providing them with advanced tools for business transformation. Additionally, ServiceNow has made a strategic investment in inMorphis, a leading ServiceNow partner, to strengthen its presence in India and the ASEAN region.
ServiceNow Inc. (NYSE:NOW) recently reported strong financial performance for Q2 2024, exceeding its guidance across all topline growth and profitability metrics. Subscription revenues reached $2.54 billion, marking a 23% increase compared to the previous year. Total revenues also grew by 22% year-over-year to $2.62 billion. As of Q2 2024, the company’s current remaining performance obligations stood at $8.78 billion, reflecting a 22% increase, while total remaining performance obligations surged to $18.6 billion, up 31% from last year. Additionally, ServiceNow recorded 88 transactions over $1 million in new annual contract value (ACV), which is a 26% rise year-over-year.
These results highlight the company’s robust growth and strong demand for its services, demonstrating its effectiveness in capturing market opportunities. The significant increase in remaining performance obligations indicates a healthy pipeline for future revenue generation.
Over the past 5 years, ServiceNow Inc. (NYSE:NOW) has recorded a compound annual growth rate of 27.02% for its top line and an astonishing 233.07% for its bottom line.
According to Insider Monkey’s Q2 database of over 900 hedge funds, 97 hedge funds held stakes in ServiceNow Inc. (NYSE:NOW). As of June 30, Fisher Asset Management holds 1.6 million shares of the company, valued at $1.26 billion, making it NOW’s most prominent shareholder.
Overall NOW ranks 1st on our list of the most profitable large cap stocks to invest in. While we acknowledge the potential of NOW as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.