We recently compiled a list of the 12 Best Forever Stocks To Buy Now. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against the other forever stocks to buy now.
Investment opportunities are increasingly cropping up as volatility in the equity markets edge higher in response to changes in the investment environment. Investors have had to tweak their portfolios as global central banks tweak their monetary policies in response to slowing inflationary pressure.
Uncertainty over the upcoming US election is another headwind that is fueling volatility in the markets. Geopolitical tensions, especially in the Middle East, have also weighed significantly, forcing some investors to resort to defensive investment plays.
READ ALSO: 12 Best Long-Term Stocks to Buy According To Warren Buffett and 10 Best Debt-Free Penny Stocks to Buy Now.
Nevertheless, the array of disappointing economic data led by weakness in the labor market has raised serious doubts about whether the US economy is overheating amid the high interest rates. With the economy creating partly 142,000 jobs and the unemployment rate at 4.25% in August, serious doubts were cast about the resilience of the US economy.
Investors need help understanding the state of the US economy, which had decelerated from the rapid expansion it experienced right after the pandemic when companies rushed to reopen and recruit new employees.
Reducing inflation has provided some relief for families struggling with rising costs. However, the job market has also slowed down, with fewer people being hired, wages increasing at a slower pace, and the duration of unemployment increasing as it becomes harder to secure employment.
A survey carried out by CNBC indicates that the probability of the US economy experiencing a soft landing stands at 53% as the US Federal Reserve starts its interest rate cut cycle. According to Michael Englund of Action Economics, the US economy is growing much faster than expected, even as it stares at economic risks on the horizon.
However, there is also a probability that the economy will plunge into recession at 36%, owing to the negative effects of the high interest rates. According to Diane Swonk, chief economist at KPMG US, Federal Reserve chair Jerome Power’s legacy highly depends on him engineering a soft landing after keeping interest rates high for too long.
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Analysts and economists share mixed opinions on whether the economy needs 25 or 50 basis points to start with to cure the effects of the high interest rate environment. The argument for beginning with a smaller cut is based on the assumption that the economy is fundamentally sound, as current and former FED officials argue.
They argue that starting with a 50-basis-point reduction could signal a deeper concern over the economy. It could prompt investors to expect quicker rate reductions, which could spark market booms that complicate efforts to combat inflation.
On the other hand, a bigger reduction might cause investors to believe wrongly that the Fed intends to lower rates by the same amount at its meetings in November and December. This could create an expectation that the Fed would move swiftly towards a neutral interest rate target, which is meant to neither stimulate nor decelerate economic growth, according to James Bullard, who served as the president of the St. Louis Fed from 2008 to 2023.
Amid the monetary policy uncertainty and economic growth slowdown concerns, the US equity market has remained resilient and supported by solid financial results. The S&P 500 rallying by double percentage points affirms growing investor sentiment.
The artificial intelligence frenzy has been one of the main catalysts driving sentiments in the equity markets. Some stocks with exposure to AI have rallied by more than 50%. On the other hand, the FED cutting interest rates is expected to provide the much-needed fuel to sustain the upward momentum in the equity markets.
The best forever stocks to buy now are companies depicting solid revenue and earnings growth with low debt levels poised to generate long-term shareholder value. Additionally, they boast a competitive edge in their respective industries by investing billions of dollars in research and development. In addition, the companies are increasingly spearheading industrial trends and technological advancements such as artificial intelligence.
Our Methodology
The best forever stocks offer stability and growth, making them ideal for long-term investors. We analyzed the iShares MSCI USA Quality Factor ETF, focusing on high-quality US stocks with strong competitive advantages. We ranked the top 10 based on market cap and hedge fund holdings.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Funds Holding Stakes as of Q2: 279
Market Cap as of September 18, 2024: $3.24 Trillion
Microsoft Corp. (NASDAQ:MSFT) is a tech powerhouse best known for providing some of the most sought-after software, including Windows and Office, among others. It’s also a big player in cloud computing, with Microsoft Azure, while flexing its muscles in the multi-billion gaming business through the Xbox product line.
The company has also poured billions into OpenAI, the creator of ChatGPT, and has integrated AI into numerous of its products. Its AI investments have once again strengthened its productivity tools, including Azure Office and Xbox gaming, but it has also strengthened its growth metrics.
Microsoft Corp. (NASDAQ:MSFT) is one of the best forever stocks to buy now as it regularly achieves strong financial results, and its most recent quarter was no exception. Its income from sales and operating earnings both rose by 15% compared to the previous year, showing remarkable performance for a company of its stature. Its earnings per share (EPS) reached $2.95, surpassing analysts’ predictions. This figure is also more than twice as high as it was five years prior.
One of the catalysts behind Microsoft’s robust growth is its cloud unit, Azure, which has received a significant boost amid AI integrations. With a 31% market share, it remains well-positioned data to generate significant value amid strong demand for cloud solutions.
Additionally, Microsoft Corp. (NASDAQ:MSFT) has consistently returned value to investors through dividends. The stock currently yields 0.7% with a quarterly dividend of about $0.75 per share, one of the biggest among the tech giants.
The company’s P/E ratio stands at 32, indicating a high valuation, consistent with its status as a leading technology firm. The company also remains in a solid financial position, with $23.32 billion in total free cash flow as of the end of June.
279 hedge funds hold long positions in Microsoft Corp. (NASDAQ:MSFT) in the second quarter of 2024, down from 293 in the previous quarter. Bill & Melinda Gates Foundation Trust is the highest shareholder, with a stake worth $15.59 billion.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
Overall MSFT ranks 1st on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.