Buy Microsoft at these levels, says this investor

A slowdown in the technology sector has investors worried about their holdings in the big American tech giants, and that includes Microsoft (Microsoft Stock Quote, Charts, News, Analysts, Financials NASDAQ:MSFT), whose shares are off by almost 24 per cent this year. 

But there’s no need to fret about owning Microsoft, says portfolio manager Zachary Curry, who thinks now’s a good time to be buying more of the stock on the pullback.

“It’s a great business, a great company overall,” said Curry, director at Greenrock Capital Partners, who spoke on BNN Bloomberg on Friday. 

Curry sees the stickiness of Microsoft’s products and services to be a great advantage to the company, where customers are usually around for the long term.

“They have their cloud services and they have great product bundles — usually when people sign on they sign on and grow the amount of products and services they use, so the bundle price increases,” he said. “Once you start it’s very unlikely that you’re going to give up those services.”

Microsoft made it in the news this week for a couple of reasons, one being an announced partnership with streaming giant Netflix, which plans on rolling out a lower-priced, ad-featuring subscription option, with Microsoft providing the supporting platform. Netflix said it chose Microsoft for the company’s approach to privacy and the protection of customer information.

“Microsoft has the proven ability to support all our advertising needs as we together build a new ad-supported offering. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members,” said Netflix COO Greg Peters in a press release.

But less encouraging was an announcement from Microsoft that it would be cutting some of its workforce, another sign that Big Tech may have hit a wall in terms of growth at least over the near term. Microsoft said the move was part of a strategic realignment and underlined that it continues to grow its headcount for the fiscal year ahead.

Microsoft, which will be reporting its fiscal fourth quarter 2022 results on July 26, saw revenue climb 18 per cent year-over-year to $49.4 billion in its fiscal Q3, delivered in April, while net income rose by eight per cent to $16.7 billion and diluted EPS was up nine per cent to $2.22 per share. Both top and bottom lines beat analysts expectations at $49.05 billion in revenue and EPS of $2.19 per share.

But the stock has dropped steadily over the first half of the year, along with much of the market, with tech stocks taking a particular hit. The tech-heavy NASDAQ Index of which Microsoft is a member is year-to-date down 27 per cent compared to the wider S&P 500 Index which is down 19 per cent. Microsoft’s American tech cousins such as Amazon, Apple and Facebook are also down substantially this year.

How long the current market rotation away from tech will ultimately be is unknown, but Curry says investors will want to be owning Microsoft and at the current price it’s a good time to be buying.

“Our view remains constructive [on Microsoft],” Curry said. “[They have] a fortress balance sheet, for sure. The stock provides a small dividend and there’s room for it to grow there as a possibility.”

“[There’s] lots going on [with] their cloud services and their businesses. Consumers saw the recent news with Netflix that Microsoft will be providing the support and help for their ad supported program, so that’s a growth potential,” he said. “It’s a great company and once you sign up I really don’t think you’re going to slow that down. [It’s] coming down in price and it’s a great opportunity to be able to add to an all-star franchise, for sure.”