Source: PaxForex Premium Analytics Portal, Fundamental Insight
Microsoft stock has not had a great 2022. Stock performance lagged the broader market through mid-September, thanks in part to general dissatisfaction with technology and growth stocks, and in part to lagging growth in key areas such as PC software and video games. Sharp demand growth in the early stages of the pandemic gives way to weaker growth in 2022.
But Microsoft is sure to bounce back. The company has several promising growth areas, including cloud services and a possible upswing in areas such as games. Today, smart investors have even more reasons to like this stock. Let's take a closer look at three things investors should know about this stock.
- When the economy gets tough, it's good to be king
When the economy tightens, most of the revenue that is still generated usually goes to the industry leaders, and Microsoft takes full advantage of this competitive fact. The company leads in several major niches, from cloud computing to productivity software. Smart investors see evidence of this success in metrics such as operating profit margins.
For example, operating profits jumped 14% last quarter and rose 21% to $83.4 billion in the full 2022 fiscal year. "No company is better positioned than Microsoft," CEO Satya Nadella said in July, "to help organizations realize their digital imperative."
- Microsoft has the money to withstand the crisis
Microsoft is also one of the most cash-rich companies. Not only is its annual cash flow on a steady upward trend, but it's approaching $90 billion. Cash generation doesn't require too much investment in capital-intensive data centers, which helps Microsoft stand out from big tech companies like Meta Platforms.
There are plenty of productive uses for that cash, including reinvesting in the business through big acquisitions like the Activision Blizzard purchase. Microsoft also sends billions of dollars back to investors in the form of dividends and stock buybacks. Shareholders like the extra stability that these direct returns provide when markets are down.
- Time on Microsoft's side
Despite all the positive performance, Microsoft stock is priced at its lowest price-to-sales ratio since pre-pandemic times. The stock has declined thanks to general concerns about slowing economic growth, as well as specific signs of decline in niches such as video games and productivity software.
But Microsoft will likely show much higher earnings in those segments and the cloud services division in a few years. In the meantime, investors can choose to reinvest regular dividend payments, holding the stock in the face of impending volatility.
Of course, it's possible to avoid further stock declines by waiting for global economic growth trends to improve. But timing such an upturn is tricky, and you're likely to miss some of the biggest rallies. It's wiser to keep building a portfolio consisting of stellar companies like this one, even in a tough sales environment like this one.
There's no guarantee that Microsoft stock will deliver positive returns over the next year or so. But its dominance in categories such as digital productivity, video games, and cloud services promises to deliver solid long-term returns for shareholders.
As long as the price is above 246.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 248.72
- Take Profit 1: 255.00
- Take Profit 2: 268.00
Alternative scenario:
If the level of 246.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 246.00
- Take Profit 1: 234.00
- Take Profit 2: 225.00
