While the shine may have worn off Microsoft Corporation (NASDAQ:MSFT) in the eyes of the general public, MSFT stock remains one of the steadiest performers in the investment world.
This, despite that fact that is doesn’t get the same press as Apple Inc. (NASDAQ:AAPL), isn’t a Wall Street darling like Amazon.com, Inc. (NASDAQ:AMZN) or Facebook Inc (NASDAQ:FB), and that its best days are most certainly behind it.
In fact, MSFT has been a better stock than many of its more-publicized contemporaries in the tech world. This includes Apple, the company that more than a decade ago essentially replaced Microsoft as Wall Street’s top dog.
To wit: In the last two years, MSFT stock has risen 50%; AAPL is up 45%. Going back even further, in the last five years Microsoft stock has ballooned more than 200%; AAPL stock is up 127%.
Meanwhile, MSFT pays a higher dividend (2% yield) than AAPL (1.5% yield), grew earnings (13%) faster than Apple (11%) in the most recent quarter, and has nearly double the cash in its coffers, with about 18% less debt.
All of this isn’t to put down AAPL stock. After all, 45% growth in two years is hardly worthy of mocking.
It is merely to point out that MSFT stock, which endured a big sell-off after the recession, and which attracts just a fraction of the front page headlines as AAPL, is in the midst of a quiet resurgence.
MSFT Stock Comeback Built on the Cloud
There’s been nothing particularly flashy about Microsoft’s comeback. The company’s sales have improved in seven of the last eight years, but never by more than 11%. Profit growth has been consistently in double digits of late.
In both cases, Microsoft’s top- and bottom-line growth is either accelerating or holding steady, at a time when Apple’s sales have plummeted from better than 60% growth in 2011 to a mere 19% expected growth in its current fiscal year.
And Microsoft’s comeback has been built in large part on the success of its burgeoning cloud-computing business, which just exceeded its own self-imposed goal of a $20 billion run rate, putting it at roughly 20% of total revenue. Again, not particularly exciting, but a strong new source of growth.
In essence, Apple is in the same place Microsoft was early this century: its popularity on both Wall Street and among the general public has peaked, and investors are adapting to a less exciting, albeit solid, tech company.
In the absence of some groundbreaking new product, and not just an endless supply of iPhone 8s, 9s and 10s, Apple won’t ever wow people the way it used to. About five years ago, Microsoft investors finally adjusted to that new reality, and the result has been a rapidly advancing MSFT stock price.
Everything on Wall Street comes down to expectations. Earnings are measured not on their own merits, but in terms of how they compare to analyst estimates.
High-growth companies get dinged when that growth starts to slow, even if it remains high compared to other companies of similar (or even smaller) size. And after years of outsized expectations, Microsoft started to feel like a disintegrating company.
But like many stocks that are on the wrong side of peak popularity, MSFT stock was overly punished by investors. At a certain point, Wall Street looked at Microsoft with fresh eyes and realized that it remained a very strong, diversified, still-growing tech company.
By market cap, it’s still the third-largest public company in the world. And with scarcely a pullback of any significance in the last 18 months, MSFT stock has given investors little reason to doubt it.
Buy MSFT Stock, Not AAPL
Bottom line: If you’re looking for a stock to buy and hold for the next 15 to 20 years, AAPL is still a better bet. But with Apple in a bit of a transition phase as both a company and a stock, MSFT is the safer, and likely more profitable, tech play over the next few years.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.