Microsoft (NASDAQ:MSFT) doubled its stock price on two occasions over the past 58 months. I believe Microsoft stock will double again by November 2021.
No takers?
Every once in awhile, I like to go out on a limb and make a wildly unscientific prediction. Having written about stocks for more than a decade, I know this is an utterly hopeless exercise. I have no clue where stock prices are headed. And yet, here I am, lobbing out a 21-month target price of $336.
How did I come up with this particular share price?
If you bought a share of Microsoft five years ago at $42, it took 32 months to double to $84. It then took another 26 months (December 2017 to January 2020) to double again to $168. The second double took 18.75% less time (6 months) to come to fruition. So, if it takes 18.75% less time to double again, that’s 21 months from today or sometime in November 2021.
See, what did I tell you? Unscientific.
However, what’s not scientific is why Microsoft’s stock keeps doubling.
The FANG’s of the World
Everybody loves an acronym.
FANG stocks remain popular with investors. According to BuyUpside.com, if you bought $2,500 each of Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOG) on March 28, 2013, this $10,000 investment would be worth $81,478.40 as of March 2. That’s an annualized total return of almost 35%.
If you add Apple (NASDAQ:AAPL) to the list, your $10,000 FAANG investment ($2,000 per stock) from March 2013, would be worth $75,919.87 today, an annualized return of almost 34%.
Care to guess what the annualized total return of FAAMG (you subtract Netflix and add Microsoft) is over the past seven years? Almost 30%. Not quite as extraordinary as FAANG or FANG, but still pretty darn good.
However, there’s a double-edged sword to these stocks, which represent a significant chunk of the overall U.S. markets. When they go down, they really go down. In late February, the FANG stocks lost a total of $177 billion in just two days due to the coronavirus outbreak.
That’s more than the entire Netlflix market capitalization.
Donald Trump’s MAGA Stocks
I had never heard about this phenomenon until I read about it on CNBC recently. Only, instead of “Make America Great Again,” the initials represent Microsoft, Apple, Google (Alphabet), and Amazon.
Year to date through Feb. 11, before the markets turned sour, MAGA stocks added $520 billion in market cap between them. Through mid-February, the MAGA’s accounted for approximately 70% of the S&P 500’s 52-week gain.
I googled MAGA stocks. The oldest reference to these four stocks that I could find was in July 2018 in the Financial Times. The author discussed how the FANG’s were getting tossed aside by this new trillion-dollar club, as Trump refers to them.
Whatever acronym you choose to follow, I don’t think you can forget about Microsoft. Here’s why.
Microsoft Stock Remains a Quality Play
InvestorPlace contributor Tim Biggam recently reminded investors that the company’s recent 20% correction from its 52-week high of $190.70 was a buying opportunity for the deeply oversold stock.
“Shares are also well below the levels they were before the latest blowout earnings report on Jan. 29. EPS came in at $1.51, trouncing estimates of $1.32 per share. Revenues of $36.91 easily outpaced expectations of just $35.69 billion,” Biggam wrote on March 2.
“It also marked a very impressive 15 straight quarters of earnings beats by Microsoft. Azure cloud growth continues to be impressive, with growth of 62% well ahead of analyst expectations of 58%.”
There’s no question that CEO Satya Nadella has the company performing almost flawlessly.
In January, I discussed the legal spat that Microsoft was having with Amazon over the Department of Defense, awarding the $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract to Microsoft, despite the consensus it was AWS’s to lose.
Nadella continues to grow its cloud business. The win by Microsoft over Amazon, regardless of what happens in the courts, suggests enterprises of all sizes remain confident of the company’s ability to provide quality products and services in the cloud.
A reversal, I noted, would be an opportunity to load up on its stock, much like the coronavirus has been. Since opening February 28 trading at $152.79, Microsoft stock has rebounded 14% as I write this.
I’m solidly in Microsoft’s corner until it shows me reasons not to be. The coronavirus is not a legitimate reason to sell at this point. It’s a resilient stock and will end up higher in due course. That’s not to say it will be free of volatility.
Whether you buy FAAMG or MAGA is up to you. Just make sure you include Microsoft in your portfolio. You’ll thank me when it gets to $336 come November 2021.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
