A way to beat a bear market is to invest in secular growth stocks. Secular growth refers to a growth trajectory that isn’t sensitive to market cyclicality. Thus, associated assets usually perform in both up and down markets. According to Wedbush, MSFT (NASDAQ:MSFT) stock is a secular winner to bet on as its exposure to high-growth segments could lead to indefinite prosperity.
In my opinion, Microsoft holds a great deal of leverage in the current market environment. First of all, it’s an undervalued stock that’s been oversold. And second of all, its secular growth properties could trigger a buying spree from investors seeking high-conviction asset allocation during a challenging time for the market.
Assessing Microsoft’s Secular Attributes
Microsoft’s revenue stems from 3 key segments: intelligent cloud, productivity and business processes, and more personal computing. I want to structure my analysis of its revenue mix by breaking them down into bullet points for you.
- Microsoft produces roughly 35% of its revenue from its intelligent cloud market via its Azure offering. The cloud infrastructure market is forecasted to grow at a 5-year compound annual growth rate (CAGR) of 13.4% until 2026. Additionally, Microsoft owns roughly 20% of the cloud infrastructure market.
- MSFT’s personal computing makes up approximately 34% of its revenue mix. The PC industry has reached maturity, with its forecasted CAGR being a mere 8.17% until 2026. Moreover, with a market share of around 3.4% for its Surface line of devices, Microsoft doesn’t own much of the industry.
- That leaves 31% of Microsoft’s revenue that stems from productivity and business processes. The productivity software market is expected to grow at a CAGR of 12.6% until 2026, and Microsoft owns an illustrious 48.08% of the market.
- Holistically, Microsoft has produced a 5-year operating income CAGR of 26.27%, which embodies the total growth of its segment exposure.
To summarize, key segment verticals definitely convey that MSFT stock is a secular growth play. Although Microsoft’s personal computing segment growth is underwhelming, it provides pivotal synergies to the rest of the enterprise. Thus, if the forecasted trends hold, it’s likely that Microsoft will continue to produce exponential earnings growth.
My Verdict on the MSFT Stock Price Level
Although secular growth theoretically means that the stock price will grow indefinitely, it’s still worth assessing whether MSFT stock provides growth at a reasonable price. MSFT stock has drawn down by 21% year-to-date, meaning that it’s opened up a value gap, which is conveyed by its relative valuation metrics. For instance, MSFT’s price-to-earnings ratio is at a 10.8% normalized discount and its PEG ratio of 0.9 implies that the market underscores its earnings-per-share growth.
Lastly, Microsoft stock is showing signs of recovery after rebounding from its low RSI point of 32.84 to the mid-50s, while also trading above its 10-day moving average. Thus, I believe that MSFT stock could be one of the few assets that will recover its recent losses in this bear market.
On the date of publication, Steve Booyens held an indirect long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.