Buy Microsoft Stock Before the Price Rises

  • Microsoft (MSFT) stock looks cheap at its current price and valuation, presenting a buy-the-dip opportunity for investors.
  • Despite the current pullback, MSFT stock has a distinguished track record of rewarding shareholders.
  • Microsoft also has more than $100 billion of cash and a fortified balance sheet, making it a solid investment.
MSFT stock - Buy Microsoft Stock Before the Price Rises

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There’s no time like the present to buy Microsoft (NASDAQ:MSFT) stock. Down nearly 25% on the year and currently trading right around $250 a share, MSFT stock is on sale and would make a worthy long-term addition to any portfolio.

Investors should keep in mind that, despite the recent pullback, Microsoft shares have gained 247% over the last five years and delivered a more than 700% return to shareholders in the past decade. With leading positions in key technology segments such as software, cloud computing and video games, Microsoft is the kind of rock solid technology investment that can carry investors through the ebbs and flows of any market.

Ticker Company Recent Price
MSFT Microsoft $252.91

MSFT StocAntitrust Probe

The latest news to impact MSFT stock are reports that England’s competition watchdog has opened an investigation into the company’s $68.7 billion acquisition of video game maker Activision Blizzard (NASDAQ:ATVI). The British Competition and Markets Authority said its investigation will “consider whether the deal could harm competition and lead to worse outcomes for consumers.”

The regulator has set a Sept. 1 deadline for its initial decision on Microsoft’s proposed acquisition of Activision Blizzard. The British regulator is one of the first watchdog organizations in the world to probe the deal, which was announced in January of this year.

While some industry analysts have questioned how Microsoft’s purchase of Activision Blizzard will impact the $190 billion video game industry, the general view is that, despite any regulatory reviews, the deal is likely to be finalized sometime next year. This would give Microsoft control of popular video game franchises such as “Call of Duty” and “World of Warcraft.”

At least one prominent investor is betting that the deal succeeds. Warren Buffett’s holding company, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), has purchased more than 74 million shares of ATVI stock with plans to tender them for the agreed upon sale price of $95 a share once the acquisition is approved.

Attractive Valuation

Putting the Activision Blizzard purchase aside, there are plenty of other reasons for investors to be bullish on MSFT stock.

Among its mega-cap technology peers that include, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META) and Google parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft boasts the best profit margins at 37.6%. Meta Platforms comes in second with a profit margin of 31.2%. While Microsoft’s stock trades at 27 times this year’s earnings, that valuation is not overly high considering that the company is guiding for 18.5% revenue growth this year and 14% next year, along with 15% earnings growth both this year and next.

Microsoft also has more than $100 billion of cash on hand and multiple business units that are growing at double digit year-over-year rates, including its Azure cloud computing and digital advertising units. The growth complements the continued strength of Microsoft’s flagship Windows operating system and related Office software, which continue to dominate the personal computer market with nearly 74% of the world’s desktop computers running on Microsoft products.

Increasingly, Microsoft is selling its Office software through a software-as-a-service (SaaS) model that requires customers to pay a subscription fee to access the software products from the cloud, providing the company with recurring and predictable revenue.

On top of everything else, Microsoft pays a quarterly dividend that it has steadily raised each year for more than a decade. MSFT stock’s dividend yield is currently 0.94%, which is good for a quarterly payment of 62 cents per share. Many of Microsoft’s peers, including Amazon and Alphabet, do not pay a dividend.

Among 37 analysts who cover MSFT stock, the median price target is $349.50, implying 38% upside over the next 12 months.

Buy MSFT Stock While You Can

The rout in technology stocks this year has been severe, with the Nasdaq index down nearly 30% since January. Many technology stocks are down 70% or more. While gut wrenching, the selloff has lowered the price of many leading companies and provided investors with some great deals if they can stomach short-term pain for long-term gains. Microsoft is one such stock.

The company continues to be one of the biggest and best run technology concerns in the world, and its stock has a track record of rewarding shareholders. As such, investors should add Microsoft to their portfolio while it remains cheap. MSFT stock is a strong buy.

On the date of publication, Joel Baglole held long positions in MSFT, AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


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