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Systems Software Play - BUY the Dip!
Market Summary:
The major indices are all trading significantly higher at midday, as stocks bounced back following yesterday’s tech-led selloff on Wall Street, with all eyes on the ongoing peace talks between Russia and Ukraine. Chinese stocks plunged lower for the second day in a row, hitting nearly two-year lows amid the new wave of COVID lockdowns in the country. The price of oil and other growth-sensitive commodities continued lower as well, putting pressure on the energy sector and mining stocks, but transport- and travel-related stocks surged higher, with Delta Airlines (DAL) and United (UAL) spearheading the rebound.
In economic news, the Producer Price Index (PPI) and the core PPI were both well below the consensus estimate in February but the headline PPI still hit a new record high on a year-on-year basis, rising by double-digits for the first time ever.
Stock Pick Summary:
Amidst the array of beaten-down stocks we have been carefully hunting for the best risk/reward picks into which to deploy our carefully protected cash hoard. We are confident of an eventual recovery and want to keep taking advantage of the carnage! Today, we are welcoming a stalwart that is now pushed lower enough to be an attractive investment opportunity. It develops, licenses, and supports software, services, devices, and solutions worldwide and is now also a major cloud player.
The business remains highly attractive over the long term. In particular, it is an extraordinary company that is well established and boasts a lots of competitive advantages. It continues on a high-growth trajectory and is a solid long-term dividend growth stock as well
For its fiscal second quarter, that ended in December, Revenue rose 20% year over year to $51.7 billion, beating expectations. Net income was up 21% from a year earlier to $18.8 billion, or $2.48 per share, also topping analysts’ estimates. Growth in its Azure cloud computing service and Dynamics 365 products were particularly strong, up 46% and 45% year over year, respectively. The growth in Azure represented a modest slowdown from the prior quarter’s 48% growth that caused some concern to the investors. However, the management forecast its Intelligent Cloud division, which includes Azure, would generate $18.75 billion to $19 billion in revenue for the fiscal third quarter, above the $18.15 billion analysts were expecting.
Cloud computing is now its biggest revenue generator. According to Morgan Stanley, Dynamics 365 could be one of the company’s fastest-growing segments, increasing at a compound annual growth rate (CAGR) of 23% over the next five years. Dynamics 365 is an enterprise solution that promises to increase connectivity within organizations.
It has done an amazing job positioning itself as one of the two major cloud players - Azure and AWS are the clear, undisputed leaders. Specifically, the cloud is an enormous opportunity as almost all businesses are impacted by the ongoing digital transformation and are working towards effectively moving their data to the cloud. It also transitioned its Office products (e.g. Word, Excel, PowerPoint) from a one-time licensing fee, to a subscription service. This successful move effectively ensures future recurring revenues and helps lock in customers.
LinkedIn was another bright spot in the company’s latest earnings report. The social networking site saw revenue increase 37% revenue from a year ago. This was likely attributed to changes in the labor market, with many professionals looking to change jobs in order to secure better pay or other benefits. This trend may continue for a while and further boost the revenue over next 3-4 quarters.
Finally, Microsoft's efforts in cloud-based Gaming are paying off and creating more long-term growth. It is looking to acquire Activision Blizzard (ATVI) in a $68.7 billion all-cash deal. If successful, the acquisition will expand its gaming division and give it inroads into the Metaverse. Another promising opportunity! We like the fact that it has multiple strong businesses that will pivot its growth for years to come and happy to add it to our well diversified portfolio today!
Risk Meter:
Allocation Guidelines:
We don't recommend over investing in any stock. Consider starting with a small amount, say 2-3% of your portfolio's overall value, and add a little at a time.
You could invest as low as $200-$500 on a pick, and even buy just 1 or 2 shares, if you are new to investing, low on cash or just prefer going slow.
For best results, have an intention to hold your position for at least 2 - 3 years in general. However, you can always lock profits sooner if you prefer as every investor has a unique portfolio and different goals.
Consider investing in our multiple stock picks (the more the better).
The most successful members look to mirror our portfolio as much as possible.
Besides the new stock pick, you may also consider diversifying amongst some of the earlier picks from our market crushing portfolio.
Be patient and don't allow daily market swings to unnerve you. Remember, we have a pristine track record over last 10 years, so Buzz with confidence and patience.
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