Microsoft (Nasdaq: MSFT) recently reported a solid fiscal fourth quarter (which ended June 30), with revenue up 8% year over year and net income up 20%. That’s pretty good for a company already valued at around $2.4 trillion.
There are multiple reasons to be bullish about Microsoft. First, many of its enterprise software products are the gold standards in their respective fields, such as Microsoft 365 for office productivity. The markets for those products are expected to grow by double-digit percentages through 2030.
Second, Microsoft is bringing generative artificial intelligence capabilities to its business software. For instance, Microsoft 365 Copilot leans on generative AI to write content in Word, analyze data in Excel and draft emails in Outlook.
Third, Microsoft Azure is gaining market share in cloud computing; CEO Satya Nadella credits the company’s strength in hybrid computing, AI supercomputing infrastructure and AI developer services. Azure’s exclusive partnership with ChatGPT creator OpenAI should continue to draw new business to the platform, too.
With Microsoft’s recent price-to-sales ratio of 11.4 a bit above its five-year average of 10.3, the stock is not a screaming bargain. For now, you might add this blue-chip stock to a watch list — or if you can’t wait, keep your initial position small. (The Motley Fool owns shares of and has recommended Microsoft.)
Ask the Fool
From D.E., Providence, R.I.: What do chief executive officers and chief operating officers actually do?
The Fool responds: A company’s CEO is its top-ranking employee and decision-maker and is charged with determining the best strategy for the company for long-term success. The position is overseen by the company’s board of directors, who represent owners and shareholders.
The CEO is also generally a company’s spokesperson, communicating with employees, customers, shareholders and the media — getting the public and investors interested in the company and confident about its future.
The chief operating officer is typically the second-highest-ranking manager in a company, responsible for implementing its strategy. The COO will manage day-to-day operations, dealing with customers and employees in sales, marketing, finance and other departments. While the CEO is more externally focused, the COO often focuses more internally.
Together with the chief financial officer, the CEO and the COO work to keep the company financially healthy.
From T.I., Peoria, Ariz.: I saw a company announce major layoffs — but then its stock went up. Shouldn’t the stock have fallen?
The Fool responds: It all depends on investor sentiments and expectations. If investors see the layoffs as another nail in a struggling company’s coffin, the stock may fall. But if they see the move as encouraging, perhaps because the company is cutting costs and will now be leaner, they may be more interested in buying shares; that can boost the stock price.
Layoffs are painful for those let go, but they can be smart moves for companies if they’re able to shrink payroll expenses while still being able to profit and grow.
The Fool’s School
There are two key approaches to studying stocks in order to find promising investments: fundamental analysis and technical analysis. It’s worth learning about both and how they differ.
Fundamental analysis is best suited for finding appealing long-term investment opportunities. Shares represent an actual ownership stake in a real business, and investors examine a company’s fundamentals to understand exactly what that will mean. As you study a company, you’ll be assessing factors such as its financial health, competitive advantages, management quality, profitability and growth potential. You’ll evaluate how much cash and debt it has, whether its profit margins and market share are growing, and how it can grow further.
If you’re a value-oriented investor, you aim to buy stocks at prices below their intrinsic — or fair — values. You might use valuation tools such as price-to-earnings (P/E) ratios or discounted cash flow calculations to get an idea of a stock’s fair price.
Technical analysis, on the other hand, tends to focus on short-term investing. It’s also backward-looking, basing expectations of future stock behavior on past behavior. Using graphs and charts of stock price movements and trading volumes, analysts look for patterns that are deemed promising. Technical analysis tends to ignore many factors that affect a company’s performance, such as its cash flow, debt load, growth prospects, country of operations and so on. Investors using it may not even know what a particular company they buy shares in actually does.
There can be contentious disagreement between practitioners of fundamental and technical analysis, and academic studies don’t draw unanimous conclusions. But the investing approaches of many great investors, such as Warren Buffett and Peter Lynch, employ fundamental analysis — and you might want to favor it for long-term investing as well.
Technical analysis might offer some short-term insights, but you’re more likely to build long-term wealth by studying great companies, investing in them at good prices and hanging on for many years.
My Dumbest Investment
From T.H., online: My most regrettable investing move was simply not starting sooner. Starting in one’s 50s is probably not the best strategy, but I’m hoping that 10 to 15 years will be still enough time to make a difference. I suppose with the right portfolio, that would be possible. That’s the tricky part.
The Fool responds: Way, way too many people have made the same regrettable move. According to the 2019 Survey of Consumer Finances conducted by the Federal Reserve, the median retirement savings for a family led by someone aged 45 to 54 — and who had retirement savings accounts — was around $100,000. That’s not a lot. Per another government report, only 84% of those aged 45 to 59 had some retirement savings, and only 45% felt they were on track.
You’re right that even in your 50s, you can still greatly improve your future financial health. If you invest, say, $15,000 annually for 15 years starting at age 50 and it grows by an average rate of 8%, you’ll end up with around $440,000 by age 65. (If you’d started a decade earlier, though, you’d have nearly $1.2 million — it’s definitely best to start early.)
Don’t invest too aggressively or recklessly, though, lest you lose ground instead of gaining it. A simple low-fee S&P 500 index fund is often best. Learn more at Fool.com.
Who am I?
I trace my roots back to 1941, when six craftspeople banded together to make beautiful wallets and billfolds. I began as Gail Leather Products and was later renamed Coach. I was sold to dessert specialist Sara Lee in 1985, but it spun me off in 2001. In 2017, I changed my name to reflect my multiple luxury brands — such as Kate Spade and Stuart Weitzman. I’ve recently agreed to acquire Capri, which has brands such as Versace, Jimmy Choo and Michael Kors. I employ around 10,800 people and was recently valued at $7.5 billion. Who am I?
Can’t remember last week’s trivia question? Find it here.
Last week’s trivia answer: Hasbro
0 Comments