Now’s an Ideal Time to Build a Position in Microsoft (MSFT) Stock

Like other big tech stocks, Microsoft (NASDAQ:MSFT) still finds itself in a slump. Although it has bounced back from its 52-week low, MSFT stock remains down 25% year-to-date. The same market-related factors putting pressure on the rest of tech are putting pressure on the software colossus as well.

The main challenge for Microsoft right now are concerns about an economic downturn thanks to high inflation and rising interest rates. After seeing big growth acceleration during the pandemic, results over the next year could be far less impressive.

However, does this mean it’s time to cash out of Microsoft if you own it, and avoid it if you don’t own it? Not exactly. If you are a long-term investor in Microsoft stock, there’s no reason to cash out now. If you aren’t a current holder of MSFT, now may be a good time to start building a position.

Let’s take a closer look at why that’s the case.

The Near Term Could Remain Frustrating for MSFT Stock

I’ll admit that shares could continue to deliver middling performance in the short term, as the aforementioned factors affecting this stock and its peers continue to play out.

Tech growth is already taking a breather. You can imagine how bad things could get if we go from worrying about a recession, to actually entering one. Enterprise IT spending could take a serious hit, hurting demand for this company’s offerings across the board.

What could that mean for Microsoft? As Morgan Stanley’s Keith Weiss recently put it, while the company could fare better than peers, it’s not immune to a downturn. Weiss, who is bullish on the stock, giving it the equivalent to a “buy” rating, and a $354 per share price target, noted that there is the potential for earnings for this fiscal year (ending June 2023) coming in $1 per share below current estimates.

However, even if this happens, this may already be well reflected in the current MSFT stock price. That’s not to say shares have bottomed out. Shares could continue to slide before doing so. Still, if you have a long time horizon, this isn’t a reason to stay away.

It’s a Different Story for the Long Term

There may be more bad news, and more disappointment for Microsoft in the months ahead. Even if the stock doesn’t move lower from here, it could languish at or near current price levels, until an increasingly likely downturn is fully factored into its valuation.

In short, there’s no reason to buy this in the hopes of a quick recovery. But this is a rationale for beginning to buy it today as a long-term position. No one can predict when MSFT stock, or any stock, will bottom out in a downturn. You can’t time the market (no one can). Instead, it’s best to start accumulating while it’s still experiencing weakness, ahead of a likely recovery down the road.

Why do I think Microsoft will recover in time? The issues plaguing it today are short term in nature. Recessions do not last forever. After the downturn, economic activity will return to normal. IT spending will pick back up. That bodes well for continued growth of its Azure cloud computing platform.

As I’ve discussed previously, the company is also moving into other high-growth areas, like cybersecurity and customer relationship management (CRM). Although growth could slow down this fiscal year, it could quickly re-accelerate.

The Verdict on MSFT Stock

Currently, Microsoft stock earns a “B” rating in my Portfolio Grader. When growth re-accelerates, shares will likely recover. They’ll re-hit levels last hit in late 2021, and carry on to hitting new highs.

That is why it makes little sense to sell the stock if you already own it. Don’t risk missing out on the recovery just because short-term headwinds are making you nervous. If you haven’t bought it, then now is a great time to do so. The current negative sentiment for Microsoft stock works highly in your favor.

Thanks to the negativity, MSFT stock trades at a favorable valuation today. In the coming months, you can gradually build up a position. It could ultimately turn into a position that could deliver solid returns for your portfolio in the years ahead. As such, I recommend it as a buy either now or on further weakness.

— Louis Navellier and the InvestorPlace Research Staff

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Source: Investor Place