With this choppy, news-driven market still driving wild daily swings, it’s still not time to go “all in.” But adding to or starting positions in strong stocks is a good idea.
We’ve talked about how to get back in at the right pace – buying in increments, using dollar-cost averaging to lower your cost basis.
As far as what to get into – you can’t go wrong with a strong tech leader.
These are the stocks you want to own for years to come.
Buying in a little off the bottom won’t matter in a few years, when your money has doubled or tripled – or better.
To get that tech leader buy list ready, it means giving each one a thorough checkup to make sure that prior to the correction, it had a great track record of earnings gains.
I’ve recently given you recommendations on this money-doubling stock and these three high-dividend tech stocks. Today, I want to reveal a tech leader that I feel should be on everyone’s watch list. It’s a former laggard that became one of the market’s top leaders. Along the way, it amassed a market value of roughly $1.4 trillion.
But when it became one of the first in the sector to warn of a sales decline brought on by the coronavirus and exposure to China, the stock got hammered.
Here’s the thing – it’s firing on all cylinders, and it gives investors multiple shots on goal. I’m talking about everything from defense and cannabis to the cloud and computing…
Playing a Miraculous Comeback
From the time the S&P 500 entered into a correction on Feb. 19 and March 23, Microsoft Corp. (NASDAQ: MSFT) lost more than 27% of its value. The stock is sitting at around $172.06 at the time of writing.
But make no mistake – this stock is a solid long-term play. We can see the quality of its operations from its most recent earnings report, covering its second fiscal quarter.
Two words sum up its biggest boost during its second fiscal quarter ended Dec. 31, 2019: recurring revenue.
Its commercial cloud computing platform, Azure, and Office 365 helped smash expectations and send gross margins up 67%.
A Wedbush analyst recently told Investor’s Business Daily that the earnings report was a “masterpiece.” And a Bernstein analyst wrote, “What more could you want?”
It bears noting that this was a company stuck in neutral for many years. That is… until Satya Nadella became CEO six years ago on Feb. 4.
He reorganized and reprioritized the company. He shut down unprofitable divisions and other operations that were not adding value to the current core business or the opportunities of the future.
He shifted the company from the old dependence on PC software to a cloud-based model that focused on subscriptions and recurring revenue.
And he built a cloud platform that has since become a fierce competitor to the once-dominant Amazon Web Services. Yes, Amazon remains the leader in cloud-hosting, but Microsoft now ranks second and is coming on strong.
Ironically, as an organization, Microsoft’s leadership didn’t seem to know what to do with its Azure cloud unit before Nadella became CEO.
But as the saying goes, that was then, and this is now…
Innovating and Consolidating
Make no mistake: Azure keeps gaining steam in its race with AWS.
Azure’s growth for the quarter was up 39%, or $12.5 billion, compared to the same quarter last year.
That’s very impressive given that most $48 billion-plus businesses don’t grow anywhere near that pace. And the cloud also promises even stronger gross margins once growth resumes.
Clearly, after warning that the coronavirus will affect the current quarter’s results, we can’t predict just what will happen here. But bear in mind that the most recent reporting period was the fourth straight quarter that gross margins had grown.
One of the things I really like about Microsoft is that it gives us more hooks than that – everything from PC software to AI, virtual reality, cannabis compliance, and gaming. Even defense, for that matter.
For instance, last October, Microsoft won the Pentagon’s massive Joint Enterprise Defense Infrastructure (JEDI) contract. That’s a 10-year, $10 billion deal to provide infrastructure and platform services for the Pentagon’s business and mission operations.
The goal of JEDI is to unite the entire military on one platform. To put every soldier, ship, and airplane on a single data framework.
And Microsoft’s JEDI deal is just the beginning. In November of last year, its HoloLens augmented reality headset was chosen by the U.S. Army as its heads-up data display for the infantry.
Not only that, but the Office 365 suite is the top contender for the Pentagon’s multibillion-dollar Defense Enterprise Office Solutions contract, which would put all the armed services on the same enterprise network.
This is likely why Amazon Web Services lost the JEDI contract and won’t get far with its legal challenge. The Pentagon sees a single tech solutions provider as a more reliable and responsive partner.
Also remember, most of the U.S. government already runs Microsoft software across its many agencies covering some 2 million workers.
The Crisis and Beyond
What Nadella has done in his relatively brief tenure is nothing short of amazing. He turned a company hopelessly tied to PC sales into one at the leading edge of some of the world’s top technology platforms.
No wonder earnings have grown an average of 17% over the last three years. If that rate were to continue, they would double again in roughly 4.25 years.
However, we won’t know the full impact of the coronavirus on Microsoft’s earnings until it reports results for the current quarter on April 22.
For the average retail investor, I would suggest not pulling the trigger until after that date. At that time, Nadella will likely offer guidance for future sales and earnings growth, allowing us to determine a fair price in this environment.
But if you take into account all the positive factors in this firm’s favor, you can see why I say Microsoft ought to be on every tech investor’s watch list.
— Michael A. Robinson
Source: Money Morning