There are few guarantees in the rough and tumble world of technology stocks. Like the volatile healthcare sector, the margin for error is extremely tight. One wrong move could send even the highest-regarded company tumbling. Microsoft Corporation (NASDAQ:MSFT), it seems, is a rare exception.
A majority of covering analysts have a bullish rating on MSFT stock, and only three are bearish this quarter. With so much going on for Microsoft stock, who could blame them?
Microsoft Corporation’s Turnaround
First and foremost, as many of my colleagues have pointed out, much of the resurgence of MSFT stock is the result of new Microsoft Corporation CEO Satya Nadella. Since taking over the helm, Microsoft stock has gained over 50%. That’s an impressive haul for a company once considered deeply troubled. Under Nadella, the focus has been toward the future — hello, cloud computing and artificial intelligence! At the same time, it means abandoning projects that have been detrimental to Microsoft Corp. — goodbye, Nokia Corp (ADR) (NYSE:NOK)!
This cutting of ties with the past is just as important as promoting innovative products. History may eventually judge Nadella’s tenure on how different he was than former Microsoft Corp. head boss Steve Ballmer. Tumultuous doesn’t even begin to describe Ballmer’s reign as he took over right before the 2000 tech bubble collapse. No one could have saved the MSFT stock price from the immediate aftermath, not even company founder Bill Gates.
But that doesn’t mean Ballmer is off the hook. Analysts have noted that he was slow on the ball when Apple Inc. (NASDAQ:AAPL) revolutionized the portable smart device. Like BlackBerry Ltd (NASDAQ:BBRY), MSFT headed into a gunfight armed with a kitchen knife. What made it comically worse is that Ballmer didn’t know any better, and even expected to win.
MSFT Stock Held True During the Storm
When it became clear that Apple wasn’t messing around, it was too late. They lost significant traction to the Steve Jobs machinery and to surging rival Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Of course, in hindsight, it’s easy to play the blame game. Arguably, Ballmer may not have done the best job for MSFT stock investors. It would not be appropriate, however, to hold him responsible for Microsoft Corporation’s ills and to reward Nadella for its successes. For example, few point out that, on an adjusted basis, Ballmer brought the average MSFT stock price back up to its tech bubble heyday.
He’s really the unheralded relief pitcher brought into a dirty inning. I would argue that Ballmer was brought in to pitch two dirty innings — the tech bubble and the 2008 global meltdown. His genius wasn’t so much his decision-making acumen, which is deemed questionable. Rather, he kept MSFT stock in the game. While not an outright victory, it’s almost just as important.
Nadella thanked Ballmer for laying down an “incredible foundation” for Microsoft Corporation. This was one of those rare, “synergistic” statements that I actually take at face value. We can talk all day about the exciting developments that are occurring for MSFT.
Like so many others, I’m bullish for the company’s prospects. I understand, however, that you can’t make money without money. The tech giant is fortunate to have kept its relevance intact, and thus provide the impetus for Nadella’s success.
Newfound Stability for Microsoft Stock
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The full-year return in those decades averaged 63%. In other words, the company started strong and finished strong.
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While the former CEO did manage to ultimately find his way out of trouble, the turbulence was palpable.
In the present decade, the MSFT stock price is still hectic compared to the Bill Gates era. It’s also clear, however, that the kinks are being worked out. Between 2012 through 2015, Microsoft stock averaged 23% returns. That compares very favorably to the -1% average over the prior four-year period.
I still believe that Microsoft Corporation has transitioned to a longer-term value play as opposed to a monster growth stock. It’s become too much of an industry giant to be anything else. That’s not a bad thing. The big difference now as opposed to several years back is that MSFT has matured into this role. Because of that maturity, Microsoft Corporation should continue to provide the consistency that was its hallmark twenty to thirty years ago.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
