Shares of global technology giant Microsoft (NASDAQ 🙂 had a great run in 2019. Investors sent the shares up after seeing. This built up strong expectations for extra profit this year.
Currently, & # 39; the world's most valued company, with a market capitalization of $ 1.4 trillion, Microsoft shares have already risen around 18% during the first seven weeks of 2020, after a return of around 60 in 2018 % to the shareholders. shares closed at $ 184.42 yesterday, slightly below the highest point of $ 190.7 ever reached on February 11.
This Microsoft stock rally – which began in mid-2016 – shows no signs of a peak, as the software giant in WA, Redmond, is benefiting from the growing demand for cloud services.
After a massive transformation led by CEO Satya Nadella, which began more than five years ago, Microsoft has become one of the most powerful players in the fast-growing cloud computing market, with the second largest market share of the segment, with only Amazon (NASDAQ 🙂 forward.
When he became the CEO of the company in early 2014, Nadella began to diversify Microsoft's income from its traditional growth engines – Windows and Office. The company invested heavily in data centers and other infrastructure to help business customers run applications and store information. Growth in this segment continues unabated. In the four quarters until December 31, Microsoft's earnings more than doubled.
But because of the relentless rally in Microsoft shares, investors are also wondering whether it is a good time to buy this best-performing stock? Despite a strong bullish trend supported by robust fundamentals, some investors are concerned that technical stocks have generally gone too far, too quickly, especially in the wake of the coronavirus outbreak in China and its global spread, which was still a catalyst yesterday was for the tech sector sales on Wall Street.
10% market correction?
Goldman Sachs told clients this week that a short-term correction, with the market slipping at least 10% from a recent peak, "seems much more likely", as equities are "increasingly exposed" to disappointing earnings growth due to the Covid-19 outbreak.
In addition, China plays a central role in the global supply chain of production, making many technology companies vulnerable. Just about every important piece of consumer electronics is made there, from iPhones (NASDAQ 🙂 and game consoles to half of the liquid crystal display LCD screens in the world.
"We believe that the greater risk is that the impact of the corona virus on earnings may be underestimated in current stock prices, suggesting that the risks of a correction are high," Goldman said analyst Peter Oppenheimer in a note.
The shares of Apple Inc. indeed fell on Tuesday, after the company said the effects of the corona virus would cause it to miss its sales goals this quarter. But unlike Apple, which generates around 20% of its sales from China, Microsoft only gets 1.8% of its worldwide sales from the Asian nation.
Apart from these short-term risks, executives at Microsoft are fairly positive about future earnings growth. Gross margins for the commercial cloud sector, including Azure computer services and Office 365 applications, were expanded to 67% in the fourth quarter. And while the company's margins rose for the fourth consecutive quarter, managers said during a conference call last month to analysts that this figure should continue to rise this year.
His rock-solid dividend and excellent payout record contribute to Microsoft's appeal as an attractive investment, particularly in an uncertain economy. Since 2004, when the tech giant first started paying a dividend, the payout has increased more than fourfold. Microsoft's current annual dividend yield is 1.09% with a quarterly dividend of $ 0.51 per share.
Of course, companies that pay reliable dividends are in a much better position to withstand sales pressure than companies that don't, making them less volatile in a bear market because they offer guaranteed, recurring income to shareholders.
Bottom Line
As investors remain nervous about the global economic outlook in the wake of coronavirus, yesterday's correction in the leading tech stocks, including Microsoft, was not surprising. But that weakness should offer a buying opportunity. The basic principles of Microsoft make it a safe long-term gamble in the technical area.
