Expect Microsoft to Move Higher on Strong Tech Earnings

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Microsoft stock - Expect Microsoft to Move Higher on Strong Tech Earnings

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The stock market has challenged investors for all of 2018. In addition to the effects of global saber rattling amid the U.S.-China trade war, Wall Street has seen volatility come back in force. As a result, we had sharp corrections in stocks, especially in the Nasdaq Composite. Microsoft (NASDAQ:MSFT) is one of the lucky stocks that is still up 25% year-to-date while others like Alphabet (NASDAQ:GOOGL) are back to flat or worse. Momentum stocks like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) were hit hardest of late, but are still superstars up 50% for the year.

This is a sad day for Microsoft since we learned last night that co-founder Paul Allen died at the age of 64. And here is the company, decades later, still leading the tech sector.

Unlike International Business Machines (NYSE:IBM), MSFT figured out how to reinvent itself to thrive in the new-tech world where software-as-a-service is the way to present products.

Fundamentally, Microsoft stock sells at a 27 trailing price-earnings, which is reasonable. While it’s not screaming cheap, it’s not bloated either and owning it for the long term is not likely to be a financial mistake. The concern is over the state of the global equity markets at this point in time. Sentiment has yet again flipped negative in spite of having favorable macroeconomic conditions.

Companies are still making record profits and growing rapidly. Yet the fear of a correction still lingers thereby eliminating the appetite to rally from here. The absence of bids stock prices tends to stagnate or fall. Technically, MSFT corrected over 10% in 10 days. It has since bounced off last week’s bottom. Microsoft stock found support at $104 per share, which is the start of a consolidation zone for the last three months. Those tend to be supportive as they create congestion on the way down. If that fails then $96 per share is the next zone to note.

Trading Microsoft Stock

So this makes today’s trade a blend of tactical and long-term investment. I want to be long the stock since it has a good set of fundamentals to warrant higher prices years from now, and still offer a midterm opportunity for some profit-taking along the way.

I could use options to buy in-the-money call options or I could simply own the asset itself to eliminate the effects of time should there be more downside from this current sentiment malaise. The experts agree, since most of Wall Street analysts have MSFT as a buy, and the stock still trades below their average price targets. Unless the fundamentals there deteriorate suddenly I don’t see any threat from surprise negative headlines.

Microsoft will deliver earnings next week so there might be bit of volatility around the event. I could protect myself for the short-term with put options depending on how MSFT stock trades between now and then.

Meanwhile, NFLX reported blowout earnings tonight. Because tech stocks tend to trade in unison, it’s likely to cause a sympathetic move in the FANG gang and MSFT tomorrow.

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Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/10/expect-microsoft-to-move-higher-on-strong-tech-earnings/.

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