Play Microsoft's Rally with These 4 Mutual Funds
Since the dot-com bubble burst, Microsoft Corporation’s MSFT shares and market value remained stagnant. But, Microsoft’s focus on cloud computing altered the scenario, with its fiscal first-quarter results beating Street estimates. Such upbeat results helped its shares scale record highs.
Microsoft made huge inroads into the cloud space, which will help the company’s share price gain more ground. Thanks to such bullish trends, investing in technology mutual funds with a significant holding in this software giant will be judicious.
Microsoft at an All-Time High
Shares of Microsoft hit an all-time intra-day high of $60.45 on Oct 21, trumping its previous record set in 1999. It eventually closed at $59.66, above its previous record close of $59.56.
During the trading session, the stock gained 4%, its best one-day percentage gain since July 20. More than 79.9 million shares changed hands, way above the stock’s 30-day average trading volume of around 25 million shares.
MICROSOFT CORP Price and Consensus
MICROSOFT CORP Price and Consensus | MICROSOFT CORP Quote
Microsoft surged to record highs after its first-quarter sales and earnings topped analysts’ expectations. First-quarter fiscal 2017 revenues of $22.33 billion beat the Zacks Consensus Estimate of $21.54 billion. Earnings per share of 76 cents also surpassed the consensus mark of 68 cents (read more: Microsoft Stock Soars to New All-Time High).
Cloud Boosts Revenues
Growing demand for cloud-based software and services were cited to be the main reasons for the stellar quarterly performance. Chief Executive Officer Satya Nadella has been investing in data centers for a considerable period of time to bolster sales of Microsoft’s main cloud products including Azure and Office 365.
Revenues from Azure cloud platform soared 121% in the reported quarter from year-ago levels, which eventually boosted Microsoft’s Intelligent Cloud unit. Revenues from Intelligent Cloud unit were $6.38 billion, up 8.3% year over year. The commercial business which includes Office 365 & other related cloud services also saw revenues climb 5% from year-ago levels (read more: Microsoft Beats Q1 Earnings on Strong Cloud Growth).
Cloud a Game Changer
Back in 1999, Microsoft’s shares moved north banking on growth in personal computer (PC) market and productivity applications. With an increasing number of Americans taking to the Internet, its software business received a boost.
But, its shares nosedived following the dot-com bubble burst. Microsoft had to bore antitrust regulators and had to face stiff completion from rivals such as Apple Inc. AAPL and Alphabet Inc GOOGL on emerging trends including mobile computing. Investors blamed the then CEO of Microsoft, Steve Ballmer for his failed efforts.
His successor, Satya Nadella, however, has been focusing on the company’s cloud computing business. He convinced the company’s long standing customers to use Microsoft’s web-based, on-demand Azure services. A move that seems to have worked well for him, as revenues from Azure more than doubled from the year-earlier period each quarter this year. This has also offset declines in demand for its PC’s.
Microsoft’s Stellar Results Puts 4 Mutual Funds into Focus
Improvement in cloud margins is expected to lift the software giant. In fact, Nadella had said that the company’s cloud business has annualized revenues of more than $13 billion, while the company is in track to expand such a business to $20 billion by 2018. Thanks to such bullish sentiments, investing in technology mutual funds having a significant exposure to Microsoft is likely to be a prudent choice.
Lest we forget, the technology sector reports relatively above par earnings fueled by demand for technology and innovation. The broader tech sector has also gained around 11% this year, mostly led by the group’s biggest companies including Microsoft.
We have chosen four mutual funds that have Microsoft in the top four holdings, as per their latest filing. These funds also possess a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and carry low expense ratios.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why investors should park their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Columbia Global Technology Growth A CTCAX invests the majority of its net assets in equity securities of technology companies that may benefit from technological improvements, advancements or developments. CTCAX’s 3-year and 5-year annualized returns are 15.2% and 18.2%, respectively. Its annual expense ratio of 1.4% is lower than the category average of 1.42%. CTCAX has a Zacks Mutual Fund Rank #2.
Putnam Global Technology A PGTAX invests a large portion of its net assets in securities of companies in the technology industries. PGTAX is non-diversified. The fund’s 3-year and 5-year annualized returns are 16.1% and 14.9%, respectively. Its annual expense ratio of 1.26% is below the category average of 1.42%. PGTAX has a Zacks Mutual Fund Rank #2.
T. Rowe Price Science & Technology PRSCX invests a major portion of its assets in the common stocks of companies expected to benefit from the development and use of science and/or technology. PRSCX’s 3-year and 5-year annualized returns are 15.5% and 15.9%, respectively. Its annual expense ratio of 0.84% is lower than the category average of 1.42%. The fund has a Zacks Mutual Fund Rank #2.
Fidelity Select Technology FSPTX invests the majority of its assets in securities of companies principally engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements. The fund’s 3-year and 5-year annualized returns are 12.5% and 15.3%, respectively. Its annual expense ratio of 0.76% is lower than the category average of 1.42%. FSPTX has a Zacks Mutual Fund Rank #1.
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