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Why Microsoft Corporation (MSFT) Stock Is a Great Buy on This Dip

MSFT is finding new areas for growth

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Microsoft Corporation (NASDAQ:MSFT) has been on a tear in 2017, up 17%. However, MSFT stock has been pulling back in recent trading. Shares are down more than 3% and while that may not be much, it may be the start of a good buying opportunity.

Why Microsoft Corporation (MSFT) Stock Is a Great Buy on This Dip
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Just last week I said investors should consider buying Microsoft stock, but on a pullback. Since we’re on the topic though, let’s get the technicals out of the way.

Trading MSFT Stock

Microsoft stock is currently near $72.50. Ideally, we would be buyers on a dip to at least $71.22, where the 50-day moving average is currently resting. Even more ideal though would be a pullback to stronger support.

MSFT stock, Microsoft, MSFT, Microsoft stock Click to Enlarge

On the chart, that’s the green and black lines. This would put MSFT stock between $68 and $70.

Will that type of pullback materialize? If we look at the the Relative Strength Index — which measures how oversold or overbought a stock is — we see it’s sitting near 50 RSI support. It bounced on Friday and this could prove to be a temporary low.

Admittedly, I would have more conviction buying between $68 and $70 on strong support than I would at $72.50 buying on RSI trends. But this could put shares in-line to test its prior highs near $74.50.

Perhaps this type of price action will encourage investors to buy a half position now and the other half later. Considering the rather tepid response to the strong jobs report on Friday though, some investors may rather take their chances waiting for a deeper pullback.

Microsoft Stock: What About Earnings?

Investors may have trouble waiting for a market-wide pullback to take down MSFT stock. This is especially true after Microsoft handedly beat on earnings-per-share and revenue expectations just two weeks ago.

Its businesses are doing well. LinkedIn is helping drive revenue growth. Its Azure cloud division saw revenue rise 97% year-over-year. The industry remains strong, as companies like, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Alibaba Group Holding Ltd (NYSE:BABA) continue to report strong results as well.

Because of Microsoft’s accelerating revenue, shares have increasingly commanded a higher valuation over the years. Some may argue this is bearish and MSFT will decline as its valuation reverts to the mean. I don’t agree with this assessment, as Microsoft has better growth now, while its vision of future growth is more clear under CEO Satya Nadella.

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