Microsoft stock is starting to look attractive, John Zechner says

Bargain hunters may be thinking that now’s the time to buy some Microsoft (Microsoft Stock Quote, Chart: NASDAQ:MSFT), now that the stock has pulled back almost eight per cent from an early October high. But the tech selloff may not be done yet, says fund manager John Zechner, who nonetheless likes the company’s prospects.

For a brief stint on Tuesday, Microsoft overtook Apple as the world’s most valuable company, as investors pulled APPL lower on a report yesterday that US President Donald Trump said that further tariffs on Chinese imports — including Apple products — could be forthcoming, leading to further turmoil for the beleaguered tech sector.

Like its FAANG cousins, Microsoft has been impacted by the tech selloff, even as it produced a strong results in its fiscal first quarter earnings last month. There, MSFT’s cloud computing business helped boost revenue to a 19 per cent year-over-year increase, coming in at $29.08 billion for the quarter and beating the consensus expectation of $27.90 billion. (All figures in US dollars.) The company beat the Street on earnings as well, generating $1.14 per share versus the expected $0.96 per share, while management guidance proved tepid on fiscal Q2 sales.

Zechner says that unlike some of the other tech giants, Microsoft looks well-positioned.

“I’m short a lot of stocks in the technology sector right now but hadn’t been on Microsoft, and it has actually acted better than the rest,” says Zechner, Chairman and Lead Equity Manager at J. Zechner Associates, to BNN Bloomberg. “We had been long for quite a period of time and we sold it a couple of months ago. It isn’t really a short-sell here; it’s seeming more likely to be a buy. [But] the selling deluge you’re seeing in tech right now, I wouldn’t be too quick to jump into even the good quality names.”

“A lot of these big tech stocks are over-owned right now. They’re part of all these major ETFs and I just think that there’s some unwinding,” he says. “Having said that, [Microsoft] is probably headed to close to five dollars in earnings next year, which only puts it at a 20x multiple which reminds me a little of Alphabet. For a company that has great growth, [Microsoft] dominates the field, they still own the largest operating system in the world.”

“I think [CEO Satya Nadella] has done a fantastic job taking and resurrecting the growth on the Windows 360, the gaming a little bit, but mostly the Microsoft cloud,” he says. “In the end, the multiple isn’t really high and they’ve got a tonne of cash on them. I would not be selling it. I’d be staying long.”

“All tech stocks are under some pressure right now so you might be able to buy more at a lower price,” he says.