There is no other way to put it: Technology has tarnished a bear market. Many stocks fall from 40% to 50% or more.
Not Microsoft (MSFT) – Get the Microsoft Corporation ReportNevertheless.
The stock is currently 27% below its all-time high and has fallen sharply by 31%.
On June 21, I noted that Apple (AAPL) – Get the Apple Inc report was the only FAANG share to surpass Microsoft in this respect. Along with Alphabet (GOOGL) – Get the Alphabet Inc report (GOOG) – Get the Alphabet Inc reportthese shares form a nice power triad compared to other technology companies.
Now, I want to peel off even more layers of Microsoft.
Compared to FAANG, Microsoft has the best profit margins in the group, with 37.6%. Post (POST) – Download Meta Platforms Inc (formerly Facebook) is second with 31.2%. No other ingredient is over 28%.
In terms of valuation, 27-fold profits this year may seem a little rich at first glance – especially compared to Apple and Alphabet with 22-fold and 20-fold profits, respectively.
Investors should keep in mind, however, that Microsoft is projected to generate 18.5% revenue growth this year and 14% growth next year, along with 15% profit growth in both 2022 and 2023.
So not only are we talking about industry-leading profit margins, a strong balance sheet and strong cash flows, but we are also talking about stable and – most importantly – reliable development from the top and bottom line.
For what it’s worth, Apple is projected to generate single-digit profits and revenue growth this year and next, while Alphabet is projected to have steady revenue growth (forecasts, 15% in 2022 and 2023, while profits this year are expected to be stable.
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Microsoft stock trading
Do FAANG’s top profit margins ensure that Microsoft stock will fall? Of course not! We are in the vortex of a bear market and anything can happen in this environment.
The stock could rally 40% from the low and yet do not try the high again. It could drop another 20% and test the 200-week moving average (falling 42% from the highs). Do not rule out anything in a bear market.
That said, the correction has been very regular so far.
After a 23% correction in the first quarter lows, the Microsoft stock returned to about half of its losses, then broke the lows and traded down to 161.8% – almost to the penny.
In the midst of this correction, we have seen support turn twice in resistance, at $ 315 and $ 270.
Now that the stock is trying to climb, the bulls have a hard hill to climb.
Microsoft, on the other hand, has to reclaim $ 270 and active resistance, the latter of which comes from the 10-week moving average.
If he can do that, maybe we can make a bigger upward move and possibly even have a low one to work on.
If the Microsoft stock can not make such progress, the low near $ 240 remains vulnerable.
At a close below this mark, the door opens at $ 225 and then at the 200-week moving average. For the long-term investor, these sectors seem to be buying opportunities.