Aram Green is the best in the world at picking middle-sized stocks. He explains why his top bet for the next 10 years is a company that's already soared 1,400%.
- Aram Green, the top US mid-cap manager of the past three years, named ServiceNow as his top investment choice for the next 10 years, even though it's already made giant gains in recent years.
- ServiceNow has climbed about 350% since Green first invested, and more than 1,400% since its 2012 initial public offering.
- Despite is torrid post-IPO performance, Green continues to praise the company's ability to find more uses for its products.
- Green advises on small- and mid-cap funds, but says one of his goals is to buy companies as they rise through the mid-cap space and hold them until they are large caps.
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It can be very hard to part with a stock that's been an enormous success. But if you're convinced a big winner can continue to thrive for years to come, you might be spared the headache.
That's true for Aram Green, who manages the the top-ranked mid-cap stock fund of the past three years, as of October 30. His ClearBridge Select fund is also one of the best-performing funds in its space over the past five years, and has crushed the broader Russell 3000 index.
One of the most notable components of its success is the cloud software company ServiceNow. The company went public in 2012 with its stock at $18 a share, and Green added it to the Select fund two years later when it was trading at about $61. On Friday it closed at $276, a gain of more than 1,400% from that IPO price.
And yet Green doesn't hesitate to say it's his favorite opportunity for the 2020s.
"I could see us owning this for the next 10 years," he told Business Insider in an exclusive interview. "I think ServiceNow is a very special company."
While Wall Street was fairly enthusiastic about ServiceNow from its first moments, although there were questions in some corners about whether it's soaring valuation really made sense. Green says he saw a bigger picture that a lot of investors missed.
"People looked at that as kind of a small opportunity," he said, and believed a larger rival would eventually put ServiceNow in its place. "Investors weren't appreciating their ability to be successful outside of their core market."
That was key to his optimism, as Green is always on the lookout for companies that can surge from small- and mid-cap territory into large-cap status.
The company made its name with cloud apps that help businesses automate their help desk functions. That may not seem like an opportunity that justifies a valuation of about $50 billion, but Green says he and his team saw immense upside potential.
"Investors were a bit myopic and not seeing the bigger picture that was unfolding, for them to take this technology platform that they had built for IT service management and expand that out to other areas," he said. "ServiceNow has capabilities to improve work flow within the enterprise, whether that be legal or HR, there's so many other available opportunities."
That's helped its revenue grow more than tenfold since 2012, and helps the company bring in the kind of cash flows and develop the kind of margins that Green prizes.
Green acknowledges that it's hard to be sure where he'll be investing a decade from now. But he's not looking for a quick opportunity to cash out, and when the company has suffered setbacks, he's continued to add to his stake in ServiceNow even as it's risen 350% since he initially bought in.
"What it comes down to at the end of the day for us is the company's ability to generate cash and how relevant they are within their marketplace," he said.