Like the majority of the market, share prices for cloud technology giant Microsoft (NASDAQ:MSFT) have tumbled over the past few trading days on concerns that the rapidly spreading outbreak of coronavirus from China, which now has reported cases in South Korea, Iran, and Italy, will weigh on global economic growth for the foreseeable future.
In just five trading days, Microsoft stock has dropped 10% into correction territory.
But don’t let these near-term coronavirus fears scare you away from long-term winning stocks like Microsoft. The coronavirus outbreak, as scary and as bad and as volatile as it is, will pass. Indeed, there are already signs that the worst is over. Come summer, the outbreak will have dissipated, and economic activity across the globe will back to normal. That’s a good thing, because “normal” today is a full labor market, low rates, strong spending, and healthy confidence.
So, instead of running from long-term winners during the coronavirus sell-off in markets, embrace the weakness. Buy the dip. Wait out the volatility. Be patient. Let coronavirus headwinds pass. Let more enduring economic expansion tailwinds come back to the forefront. And watch Microsoft stock run back to new highs by the middle of the year.
Coronavirus Headwinds will Pass
It’s easy to look at the headlines, and think the coronavirus will be the end of the humanity, or at the very least, the end of this eleven year old bull market.
There over 80,000 cases across the globe. About 2,700 people have died from the disease. Both of those numbers are growing everyday. Recent outbreaks in Italy, Iran, and South Korea without a clear epidemiological link are concerning. Multiple towns, cities, and provinces across the globe are on lock-down. Economic activity in those areas has come to a screeching halt, and economic activity globally has slowed.
Admittedly, the coronavirus outbreak sounds awful. And it is awful. But, it’s not the end of the bull market.
When you think about it, 80,000 people isn’t that many. There’s 7.7 billion people in the world. So, 99.999% of the world is coronavirus free. Even in China, 77,650 cases isn’t that many — it amounts to just 0.005% of China’s population. Furthermore, the spread is slowing in China, with the number of new cases discovered each day on a steady downtrend, so much so that the World Health Organization has said that the coronavirus in China has peaked. The virus also isn’t very lethal, and for most patients, it results in minor cold-like symptoms.
Yes, outbreaks in other countries is worrisome. But, countries and organizations across the globe have been quick to act in terms of quarantining. Such proactive measures should contain the spread. It also helps that warmer weather in March and April will help kill the virus, and that Gilead (NYSE:GILD) has already come up with a treatment that is working.
Big picture — the coronavirus is big, scary, and volatile, but much like every other modern pandemic before it, it will pass, and it’s adverse impacts on the global economy will be short lived.
Microsoft is Poised to Win
Once coronavirus fears and headwinds pass (which should happen within the next few months), Microsoft stock is positioned to explode back to and above all time highs.
Remove the coronavirus from the global economic landscape and every other factor strongly supports strong corporate spending.
Rates are low so borrowing costs are low. The U.S. Federal Reserve, European Central Bank, People’s Bank of China and every other central bank in the world remain committed to keeping rates low. Those same central banks are also injecting stimulus and additional liquidity into the market through asset purchases. Global trade tensions are easing, global labor markets are vigorous, manufacturing activity is rebounding and corporate cash levels are super high.
Net net, if you remove the coronavirus headwind, all signs point to “GO” for corporate spending.
Come summer 2020, the coronavirus headwind will be removed. Corporate spending trends will accelerate higher to record levels. Most of those expenditures will go towards next-gen technology initiatives, most of which are centered around corporate cloud transformations.
Microsoft is the second biggest provider of cloud infrastructure services, and the hottest company in the space with the most momentum. Consequently, as coronavirus fears fade in the coming months and corporate cloud spending re-accelerates, Microsoft stock will push back towards all time highs.
Bottom Line on Microsoft Stock
Don’t let near-term coronavirus fears chase you out of long-term winning stocks like Microsoft. Instead, embrace near-term weakness, and buy the dip. Once coronavirus fears pass — and they will, soon — this stock will run higher.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by TipRanks, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.