Microsoft (NASDAQ:MSFT) stock is flying higher than ever, and year to date it is up 50%, which is double that of the S&P 500. So Microsoft is an old mega-cap leading the markets higher in 2019. So it is playing an active role in the records that equities are setting here. But the tricky part is to know if it is a good time to invest in MSFT or not. The answer is complicated because there is rarely a trade that fits all portfolios.
First let’s set the macroeconomic stage — it’s bullish. In spite of tremendous negative rhetoric, stocks are setting highs into 2020.
As the old adages say, “you don’t fight the Fed” and “you don’t fight the tape.” Both of these scenarios exist now, so the equity sellers are swimming upstream. This time last year sentiment was the exact opposite, so stock prices were sinking fast.
MSFT stock just set a new record high last week so it’s not natural to buy it with conviction. Near all-time highs there is always doubt. At the heart of this dilemma is the disconnect between buying the stock of a strong company that is clearly doing things right, and trying to time a point of entry that is not so obviously toppy.
Is MSFT Stock an Investment or a Trade?
On the one hand, it is hard to argue against the notion that there will be better entry points into Microsoft stock. On the other hand, those who believe in the company would argue that it is futile to try to time a perfect entry if the intent is to own it for the long run. Taken separately, both sides are correct. So it comes down to investor intent and time frame.
Fundamentally, although the MSFT stock price is at all-time highs, it is not expensive. It sells at a price-to-earnings ratio of 30 and it pays a small dividend to reward its equity holders. So committing capital at these level is not likely to be a major disaster. But technically, since Microsoft stock has run so far, so fast it sets itself up in a precariously steep rising wedge. Those are susceptible to sharp corrections. But even if they happen, they do not change the direction of the stock for as long as the thesis remains unchanged. Therefore, it would be temporary setback to establish better footing before more upside can occur.
Strategically, under the leadership of CEO Satya Nadella, Microsoft has been on rails. It has successfully shifted into the new tech model of subscription sales versus standalone versions. It is also making tremendous headway chasing Amazon (NASDAQ:AMZN) into the cloud. For now, there’s little doubt that Microsoft will continue to fire on all cylinders into the next few years. That means dips will be great opportunities to buy more MSFT stock.
The weekly chart suggests that it has been in a breakout from July 2016, so the bear case against it is weak without new evidence.
Microsoft Stock Has Support in 2019
From a shorter-term trading perspective, there is a gap to $141 per share, but with short-term support at $148 and $143 per share. Furthermore, $136 per share is a well consolidated zone this year and it protects the $130 pivot breakout level from June. So for those who own the stock already, there’s little reason to leave it except to lock some profits as a precaution. Otherwise, the MSFT stock price will continue to rise for as long as Wall Street remains in a bull market.
And there is evidence that this should continue. The U.S. is headed into an election season, so the incumbent party will continue to support the economy by all means. And with the help of the global central banks which are still committed to free money, the bears have their work cut out for them. Meaning the equity markets have a tailwind for the next few months despite all the fears that still linger from the tariff war between the U.S. and China.
It has been over a year and the headlines are less potent. The shock effect on stock prices wanes as investors have become inure to them.
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. Join his live chat room for free here.
