Tech stocks were not spared in the latest selling bout in the market. Over the course of a few days, the Nasdaq suffered a 11.2% drop. In that span, Microsoft (NASDAQ:MSFT) had a similar decline, falling 13.5%. However, MSFT stock is one investors need to keep on their radar.
While valuation has become a concern for several growth stocks, there are not many companies that can flex its balance sheet muscles like Microsoft. Combined with both short- and long-term catalysts, this company is a great core holding for investors.
The old saying goes, “time in the market is more important than timing the market.”
Although we all enjoy snagging a stock at the low or selling at the high, it’s not realistic for investors to do that consistently over long stretches of time. Instead, many would be better off saddled up with some of the market’s very best. In that list, MSFT stock should be included.
TikTok and the Pandemic
The novel coronavirus pandemic is forcing companies to adapt to a new work environment. Volatility is rising along with uncertainty. It has resulted in a push toward technology, as companies shift more work online and as employees turn to work-from-home solutions.
This has been to Microsoft’s benefit, as business has remained strong. In the fiscal third quarter (reported in late April), the company said the “pandemic had ‘minimal net impact on total company revenue’.”
Last quarter (reported in late July), CEO Satya Nadella said: “The last five months have made it clear that tech intensity is the key to business resilience … are the only company with an integrated, modern technology stack – powered by cloud and AI and underpinned by security and compliance – to help every organization transform and reimagine how they meet customer needs.”
Beyond the pandemic creating a mad scramble for tech and cloud solutions, there’s also the potential for a TikTok deal.
Some of the most recent reports make the case that perhaps a deal won’t be reached. But if one is, it will likely mean that Microsoft will play a role, potentially giving the company a new component to its revenue growth. It will also help build out its social media unit.
As we’ve seen in recent years, social media and digital advertising revenue can balloon higher (and bring a stock’s valuation with it).
Dependable Growth for MSFT Stock
When uncertainty is on the rise, investors don’t want speculation. Instead, they want as close to a sure thing that they can find. With that, Microsoft doesn’t have explosive growth, but at least it’s dependable.
Even though we’ve seen a big rebound in tech stocks, investors have stuck with Microsoft. That’s evident by its 76% rally from the March lows to the recent high and its current $1.52 trillion market capitalization.
Analysts expect roughly 10% revenue growth this year and 11.5% growth next year. On the earnings front, estimates call for slightly better growth, at 12.2% this year and 13.6% next year.
To repeat, Microsoft isn’t blowing the doors off with its growth, but its growth investors can count on during uncertain times.
Step back and take investing in the stock market out of your head for a minute. Imagine you’re investing in a private company or industry and have a feeling the economy could get a little bumpy. You wouldn’t want to invest in a shaky business; no, you’d want to invest in dependable revenue. That’s exactly what Microsoft offers investors.
Financial and Technical Strength
Beyond dependable growth and short-term catalysts lies another attraction: the balance sheet.
This company clears so much money it’ll make your head spin. Microsoft is sitting on $136.5 billion in cash and short-term investments. Current assets have bubbled up to $181.9 billion. That’s against current liabilities of “just” $72.3 billion.
More importantly, Microsoft generated free-cash flow of $45.2 billion last fiscal year. That’s a massive figure and it represents growth, too. The company generated $38.2 billion in 2019, $32.2 billion in 2018 and $31.7 billion in 2017.
So when times are uncertain and stock prices are swaying, long-term investors can rest easy with MSFT stock. They can count on its fortress balance sheet and massive cash flow to keep the company out of trouble.
They can also count on the charts.
After a pop higher, MSFT stock has fallen back into its previous trading range. That 10% to 13% dip offers investors a buying opportunity. Over $216 and the highs are back in play. On a close below $200, a larger dip may be on the table, which will appeal to longer-term buyers.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.