Stocks climbed around the world Thursday after news broke that the U.S. and China are set to begin another round of trade negotiations. A deal still seems unlikely at this point and the global economic picture grows gloomier by the day.
Given the current global interest rate environment, many U.S. stocks do appear to be solid investment strategies as Wall Street and traders search for returns. One such firm also happens to be the most valuable publicly traded company in the world: Microsoft MSFT.
All three major U.S. indexes popped over 1.3% Thursday because trade representatives from the U.S. and China will meet in Washington in early October to discuss a possible resolution to the ongoing tit-for-tat trade war between the world’s two largest economies. The reports of new talks came after the latest round of tariffs began to kick in on September 1, many of which focus on more consumer-facing goods.
Semiconductor powers, including the likes of Intel INTC, Micron MU, and Nvidia NVDA, helped lead the early charge, along with economic bellwethers Caterpillar CAT, 3M MMM and others. Despite Thursday’s jump, the global economic picture has started to turn slightly worse, and some recent U.S. data shows that some areas, including manufacturing and trucking, are starting to slow down.
Furthermore, negative interest rates from Germany to Japan have pushed yields on the 10-year U.S. Treasury down even further as investors climb into the safe haven. Yields on 10-year U.S. Treasurys currently rest at roughly 1.56%, down from 2% in late July. Clearly, these low bond yields tell us that investors are at least somewhat nervous about what’s next. Nonetheless, stocks can still be great buys in the current conditions if investors know where to look.
The MSFT Pitch
Microsoft is one of the most well-known companies in the world, so no one thinks they are finding a hidden gem. And this is precisely the point as investors big and small pour money into strong, stable assets in what is known as a flight to quality.
MSFT is the world’s most valuable public company, with a market cap over $1 trillion and its shares have easily outpaced all of the so-called FAANG stocks over the last 12 months—up 28% compared to second-place Facebook’s FB 17%. We can also see the Microsoft stock has climbed 10% higher than Amazon AMZN during the past three years and has crushed Apple AAPL.
The historic tech firm has not only grown through an array of acquisitions, such as LinkedIn and GitHub, over the last serval years but also through its expansion into IoT, artificial intelligence, and most notably cloud computing. The company released its full-year fiscal 2019 financial results in mid-July, which saw its overall revenue surge 14% to over $125 billion.
MSFT CEO Satya Nadella noted at the time that its commercial cloud business “is the largest in the world.” The unit’s fiscal 2019 revenue popped 21% to $39 million to account for 31% of total sales. Microsoft’s Office, Windows, gaming, and other segments have also evolved and expanded.
Due to its strong management team and impressive growth history, the firm ended last quarter with $133.8 billion in total cash, cash equivalents, and short-term investments. This helps make MSFT stock look attractive during our uncertain economic situation and help it continue to repurchase shares.
Plus, MSFT pays an annualized dividend of $1.84 per share at the moment, with a 1.34% yield that compares favorably to the 10-year Treasury right now. The company also raises its quarterly payout, with 2019 up 10% from the year-ago period and 18% on a two-year stack.
Before we take a look ahead, it is worth noting that the Redmond, Washington-based company’s valuation picture is hardly that stretched—especially considering its climb—and still trades at a discount against its industry’s average. Over the last 12 months MSFT has traded as high as 30X forward 12-month Zacks Consensus Earnings Estimates.
Looking ahead, our estimates call for MSFT’s fiscal 2020 and 2021 revenues to pop 11% and 10.5%, respectively. At the bottom end of the income statement, Microsoft’s adjusted current fiscal year earnings are projected to pop 10%, with 2021’s figure expected to come in nearly 13% higher.
These estimates represent impressive and sustained growth for such as “old” company. We can also see (chart above) that MSFT’s earnings estimate revision activity has trended heavily in the right direction recently, especially for fiscal 2020 and 2021. This helps Microsoft earn a Zacks Rank #2 (Buy) at the moment.
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3M Company (MMM) : Free Stock Analysis Report
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