The world's largest technology companies played a unique role in the COVID-19 pandemic. They are now considered defensive games due to their deep-seated competitiveness and relative immunity from the pandemic-induced economic downturn.
Over the past two quarters, their earnings have shown that these technology giants not only remained isolated from the global health crisis, but even thrived during one of the strongest economic downturns in US history.
While the rally over the past six months has pushed their stock prices into overbought territory, the correction begun this month provides some better entry points for long-term investors buying and holding.
Below, we look at Amazon (NASDAQ 🙂 and Microsoft (NASDAQ 🙂 – two companies with market caps in excess of $ 1 trillion – to understand which stocks are a better buy after the recent dip.
] Amazon
E-commerce powerhouse Amazon.com turned out to be a great bet during this pandemic. When consumers were forced to stay at home, they had no choice but to make online purchases.
Amazon's business model has positioned it perfectly to expand its e-commerce dominance and further increase its sales and reach. The stock, which initially weakened during the early days of the virus outbreak, then skyrocketed and nearly doubled in value in early September.
However, that rally is showing some signs of a spike, causing Amazon's stock to drop by about 14% from record highs, sparking investor debate whether it's the right time to buy or on the sidelines to wait. Of course, it is almost impossible to predict the short-term movements in the market, but looking at Amazon's business model, it is not difficult to conclude that this company will continue to benefit from the secular shift to e-commerce.
One of Amazon's greatest assets is its paid membership program, one of the largest in the world. In exchange for an annual fee, Prime membership offers free, expedited shipping on a variety of items. Members also benefit from streaming movies, TV shows and music as well as member-only deals.
Over time, the program has helped entice customers who once used Amazon only for books and movies. Today Prime has more than 150 million paid members.
While Amazon's online marketplaces generate the bulk of the Seattle-based business, it is not the most profitable segment. Amazon is also the world's largest cloud infrastructure provider, with Amazon Web Services generating most of the profits.
Because of this business force, all 36 major analysts now have a buy rating on Amazon, according to TipRanks.com. Bernstein, the last major holding-rated investment firm, upgraded the stock yesterday, saying it used the recent pullback to go long after missing its comeback since March. According to Bernstein:
"COVID has pushed secular trends from e-commerce to digital advertising and cloud, with Amazon as the primary beneficiary for all three revenue pools."
The company also noted that the e-commerce giant has "quietly made substantial strides in the grocery and & # 39; shopping" market, "which should only increase the company's stock position as brick-and-mortar stores reopen. .
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Microsoft
Since March, Microsoft stock has had a tremendous run. Investors pushed the stock up after seeing strong revenue growth fueled by continued demand for cloud computing services as clients shift more work online during the coronavirus pandemic.
Sales for Azure, Microsoft's meticulous cloud computing service, grew 47% year-on-year. The company posted 59% growth in the prior period and 64% in the same quarter of the previous year.
As the post-pandemic rally faltered, Microsoft stock also lost some ground, falling about 13% from a record high this month. It is likely that Microsoft could get lower as the current market correction deepens.
Microsoft 1 Year Review.
That said, the Washington state software giant is one of the safest long-term bets in the technology space. That makes its shares worth buying when they get cheaper. The reason for this optimism is simple: Microsoft has taken the right steps in the last ten years. It is now in a satisfactory position to be able to mine the rewards of its past investments.
After a massive transformation led by Chief Executive Satya Nadella, which began more than five years ago, the company has grown into one of the most powerful players in the fast-growing cloud computing market, with the world's second largest market share. segment. , only behind Amazon.
Morgan Stanley analysts recently reiterated their "overweight" assessment on Microsoft, raising their price target from $ 230 to $ 245. Combined with mid-teens earnings growth, the analysts see Microsoft's overall return profile in this unclear times as a "sustainable and attractive level".
Coupled with 10% revenue growth, further margin expansion and stock buybacks, the analysts believe the stock has a premium return profile & # 39; to the broader market, which is still not is fully reflected in the & # 39; shares.
Add Microsoft's rock-solid dividend and excellent payout record to the stock's appeal and it seems like an even more attractive investment – especially in an uncertain economy.
Since 2004, when the tech giant first started paying dividends, its payout has more than quadrupled. Currently, the annual return is 1.11% with a quarterly payout of $ 0.56 per share, after including a 10% dividend increase announced last week.
Bottom Line
As investors remain nervous about the global economic outlook amid fears of the second wave, any weakness in both Amazon and Microsoft stocks should be considered a buying opportunity. Both companies are among the most resilient tech giants and each is well positioned to continue their growth trajectories.
