Over the weekend, Microsoft’s Satya Nadella graced the cover of Barron’s as the magazine penned a very bullish article on Microsoft (MSFT). The article laid out the positive influence of the CEO’s vision and direction as the company forges forward into the cloud computing business.
Since Nadella took control, Microsoft stock have grown more almost 50% and Barron’s suggests that there’s another 30% worth of upside within the next 18 months.
Typically, we find ourselves panning cover stories from Barron’s, and here’s why. Dating back to the early 1990’s, we’ve done research on the stock performance of companies that had been featured on the cover of Barron’s and the aggregate results aren’t good.
But in some cases, Barron’s gets it right and we think this is one of them. Here are three more bullish points on Microsoft that Barron’s didn’t discuss.
Bullish Signs for Microsoft Stock
Wall Street’s Expectations: Barron’s talked about how Wall Street analysts have turned bullish on Microsoft stock. According to the current Wall Street analyst recommendations, only 59% of the analysts covering Microsoft have it ranked a buy and 12% actually have it ranked a sell.
Comparing Microsoft some of its peers (below), Microsoft is likely to see a lot more action in the way of upgrades in 2016, a significantly bullish indicator.
Return of Revenue: Microsoft’s revenue suffered some growth issues in the last two quarters, as the company was set on a course to refocus its business to the cloud. The software giant’s move towards cloud computing can be seen in the push to online versions of its popular Office suite of applications and the latest version of Windows 10.
As the shift develops, the company expects a return of revenue growth that may be seen as early as the next earnings report on Jan. 28 after the market close.
As of now, the Street’s expectations are calling for $25.2 billion in revenue, which would reflect an improvement in year-over-year numbers for the first time in more than a year.
Microsoft’s Chart: Microsoft stock is closing out a roughly 20% year of performance, which has helped to build a strong technical foundation.
Microsoft is trading well above its 50-day trendline. In general, a stock is twice as likely to continue moving higher when trading above this trendline. For comparison, less than half of the companies that make-up the Nasdaq 100 Index are currently trading above their respective 50-day trendlines.
In addition to the intermediate-term technicals, Microsoft sets itself well above the crowd as it prepares to break into new all-time high territory. Outside of Apple Inc. (AAPL), there aren’t many old-school technology companies accomplishing this feat.
This will play out as one of the catalysts to drive price and buy-recommendation upgrades in the new year.
Adding these catalysts to the list of Barron’s bullish cover story, we agree that Microsoft is setting the stage to be one of the stronger technology companies in 2016.
The current chart analysis and sentiment backdrop suggests that another 20% performance is likely for Microsoft stock in 2016. Given this, Microsoft deserves a spot in most investors’ portfolios.
As of this writing, The Johnson Research Group did not hold a position in any of the aforementioned securities.
