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Investors who mourned their first-quarter losses as Wall Street collapsed into a bear market may have missed success stories like Microsoft (NASDAQ:MSFT) stock, which managed to hold its own amid the chaos.
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It’s true. While the Nasdaq Composite fell more than 16% year-to-date, Microsoft’s stock is flat, as Bill Gates’ legacy tech company managed to hold its own amid the coronavirus pandemic.
What’s more, Microsoft is a great long-term growth stock that happens to offer a solid, sustainable dividend. That’s why Microsoft is an A-rated stock on my Portfolio Grader, and why I singled MSFT stock out recently among by top stocks to buy after this seismic market shift.
Let’s take a closer look at what makes Microsoft tick, and why I think it is a solid pick in today’s market.
Microsoft Stock at a Glance
Microsoft stock slid in the coronavirus sell-off but its fall wasn’t enough to send it into the red in the first quarter. But the stock is trading roughly 17% below its February 10 high.
In its fiscal second-quarter earnings report issued in January, Microsoft reported earnings per share of $1.51 on revenue of $36.91 billion, which both topped analysts’ expectations of $1.32 EPS and revenue of $35.67 billion.
Microsoft updated its fiscal third-quarter 2020 guidance in late February in response to the Covid-19 coronavirus pandemic, disclosing that it will not meet its revenue forecast for its More Personal Computing segment because of disruptions to the supply chain in China.
“Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call,” the company said in a statement. “As a result, for the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated.”
Fortunately, there are some significant headwinds for Microsoft that will help investors put a minor setback in the rearview mirror.
Microsoft Is a Top Cloud Stock
Ninety percent of the U.S. currently on some sort of restriction to limit movement or simply stay at home, and many countries around the world are operating in the same way. Now more than ever, cloud companies are important players for businesses and individuals.
Over the last few years, Microsoft made tremendous strides to close the gap with cloud leader Amazon (NASDAQ:AMZN) and its Amazon Web Services. Microsoft improved existing products Office and Windows and it purchased the top social networking website for job seekers in LinkedIn.
Most recently, Microsoft launched its Teams collaboration platform that allows groups and companies to work online, providing a direct competitor to rival Slack (NYSE:WORK). Teams is the fastest growing application in the history of Microsoft.
And as people continue to work remotely, services like Teams will be even more important to Microsoft’s bottom line going forward. In fact, Microsoft recently reported a 775% increase in cloud services, including Microsoft Teams, Windows Virtual Desktop, and Power BI.
CEO Satya Nadella spoke glowingly about Teams in a recent conference call with analysts:
“Now with more than 20 million daily active users, people are increasingly engaged across the platform in richer forms of communication and collaboration, participating in more than 27 million meetings a month. Integrated calendaring, pop-out chats and one touch to join meetings from your phone keeps work, conversations and meetings in the context, eliminating the need to bounce back and forth between apps.”
Microsoft Is a Top 5G Stock
I am an unabashed fan of 5G technology. Simply put, 5G is 100 times faster than 4G technology and will be one of the most significant tech advancements this year.
5G will allow users to enjoy a Wi-Fi experience that’s just as good as if you were plugged into a network. It will give users fast downloading times, incredible gaming experiences and great video streams.
That ties beautifully into what Microsoft offers. Last year, Microsoft and AT&T (NYSE:T) announced a partnership that will allow AT&T to integrate 5G with Microsoft Azure cloud services.
And in March, Microsoft purchased Affirmed Networks at a reported value of $1.35 billion, in a deal that should supplement that partnership. Affirmed works with mobile companies to help them manage and run networks on public and private clouds.
That kind of technology could allow your doctor to video chat you on your phone and assess your symptoms – a service that would be welcomed by any patient or medical practitioner these days.
And for gamers, Microsoft is testing its Project xCloud game streaming service for Android and iOS users. The service will let games play on their phone or tablet by pairing a Bluetooth Xbox wireless controller and streaming the game.
The Bottom Line on Microsoft Stock
Microsoft is much better positioned to withstand the coronavirus outbreak than many stocks on Wall Street.
With a market capitalization of more than $1 trillion, $137 billion in cash and less than $70 billion in debt, Microsoft has the capital to withstand a prolonged economic downturn while still scooping up companies like Affirmed to help its cloud growth.
Microsoft’s Teams platform will be even more critical to the company’s success in the coming months, and its stock offers a 1.3% dividend to investors. You could do a lot worse right now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.