Oh, what a difference 12 months can make… This time last year, stocks like Microsoft (Microsoft Stock Quote, Charts, News, Analysts, Financials NASDAQ:MSFT) were still riding the wave of pandemic-fuelled momentum, when retail as well as institutional investors were waving gobs of cash around and celebrating almost two years of full-throttle growth.
At the start of last November, MSFT was trading around $330 per share and had more than doubled since the start of 2020. Looking back, the stock still had a couple more weeks to go before topping out at $343. And while the smart money was always on some sort of comeuppance to the years of excessive returns, it’s a easy bet that not many would’ve predicted where we’d be now, stuck in a bear market with inflation running rampant and central bankers jacking up interest rates at every turn.
And Microsoft? While it certainly hasn’t fared as poorly as a whole host of other tech names, many of which have given back almost all of their COVID-era gains, it’s still been a rough ride for the American tech giant. MSFT is now under the $230 mark and falling, with the swoon likely giving even the hardiest of investors pause over when the pain might end.
But why not look at it the other way around? That’s the take from portfolio manager Jamie Murray, who says if you’ve been waiting for an opportunity to own Microsoft, now’s the time to buy.
“[There’s been] a little bit of a panic in the big cap technology stocks, but I think now we’re back at a point where these stocks are very attractive on a lot of traditional metrics, and Microsoft really fits the bill for one that we’d look at building a long-term position around at this price,” said Murray, head of research at Murray Wealth, who spoke on BNN Bloomberg on Friday where he nominated Microsoft as one of his top picks for the next 12 months.
Murray has a few points to mention on Microsoft, starting with a comment on last week’s third quarter earnings, which while delivering top and bottom line beats of analysts’ estimates were seemingly greeted not too cheerily by the market, which promptly dropped the stock by about six per cent after the earnings release. Management’s more muted guidance was said to be a factor, as was a bump in the road in it cloud computing business, which while up about 20 per cent year-over-year on revenue was a little under analysts’ expectations.
Murray says not to worry.
“Following last week’s results, they’ve really de-risked the 2023 estimates,” he said. “The Azure cloud services growth has come down a little bit, given that Microsoft has been passing on some savings back to the customers. [But] that’s going to increase adoption and ultimately create stickier customer bases, longer term.”
“We’ve also seen some softness in [Microsoft’s PC business] and softness in gaming, [but] a lot of this is now priced into the stock,” he said. “It’s now trading at 22x the next 12 months’ earnings, and for a company that’s going to grow its earnings probably ten to 15 per cent per year for the next five, six years, this is getting back to a great entry point for a company like this.”
Murray also has something to say about those macro-level worries, which imply that an economic slowdown and/or recession is likely to impact big and small companies alike, Microsoft included, making for a less rosy picture at least until the economy straightens up and inflation is tamed. But Murray says owning a major name like Microsoft is just what you want to be doing in the economically leaner times.
“Sure, we could see a further slowdown that would affect all stocks or most companies if there’s a recession in 2023. But Microsoft has $40 billion of net cash on the balance sheet, and historically we’ve seen when we do go through these slowdowns, these bigger companies are able to gobble up more and more market share. And then they emerge on the other side even stronger and growing faster,” Murray said.
“So, at this point, we think it’s a great company to be owning, and we’d be putting in new money in today,” he said.