This story was originally published here.
The bull market that was born in March 2009 is officially over as the Dow Jones Industrial Average and S&P 500, among other benchmarks, have recently confirmed. In fact, the latest iteration of bear market conditions in the U.S. is one of the most rapid on record. And market leader Microsoft (NASDAQ:MSFT) stock hasn’t been spared in the selling.
The S&P 500 closed Thursday nearly 27% below its February high, meaning it took just a matter of weeks for a bear market to roll around. Historically speaking, that’s fast. With what has felt like unrelenting selling pressure over the past several weeks, a broad swath of high-quality stocks now reside at levels not seen in months.
Microsoft stock is one of those names. This month, MSFT is lower by 24%. The broader S&P 500 is down almost 27%.
No, there’s no denying the fact that a bear market has taken hold. And unfortunately, tech stocks are at the center of today’s mess. This truth is dealing a short-term blow to important themes such as 5G and cloud computing.
But that doesn’t mean high-quality names like Microsoft will forever be in peril.
“However, looking past the fear and panic (and a potential short-lived economic dent/softness), we believe these high-priority areas of spending and business models have attractive risk/rewards looking ahead and we would be buying these tech names at current levels,” Wedbush analyst Daniel Ives said in a recent note to clients.
Microsoft Remains a Cloud Leader
When a stock sheds almost a quarter of its value in a month that isn’t even half over, it’s understandable investors would be skittish and focus on the negatives.
But Microsoft has a rosy future. Cloud computing via the company’s Azure business remains a compelling driver of future growth and positive investor outcomes.
Volatility is likely to remain in the near term, but that doesn’t diminish what Ives calls Microsoft’s status as the “best way to play the transformational cloud shift for the coming years.”
Then there is the matter of cash and credit, meaningful items in today’s market. Amid fears that a recession will restrict access to capital, a slew of companies recently announced they’re tapping credit revolvers. This move helps bring cash onto their balance sheets.
For its part, Microsoft had $134.3 billion in cash on hand at the end of 2019, one of the largest such stockpiles among all U.S. companies.
Additionally, should Microsoft need capital and want to retain that cash on its balance sheet, it could easily tap capital markets by issuing low-interest debt. Why? It’s one of the few companies carrying the prestigious “AAA” and “Aaa” ratings from Standard & Poor’s and Moody’s Investors Service, respectively.
Bottom Line on Microsoft Stock
The aforementioned positive factors don’t entirely insulate Microsoft — or any company — in a recession. But its dominant market positioning, strong balance sheet and easy access to capital do provide buffers in tough times.
Recent market price action suggest stocks have further to fall. But with Microsoft, investors may want to take a step back, reset and resist panicking.
“MSFT at these levels we view as a golden cloud tech name to own for those willing to navigate the volatility of this ‘shock event’ and see the forest through the trees on this cloud behemoth,” said Ives.
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