Profit from the bear market with Microsoft stock

It’s official. last week the S&P 500 attached to the Nasdaq Composite and fell firmly into bear market territory, meaning it is more than 20% below its recent high. For many investors, it is disconcerting to be in the middle of a collapsing market. It seems like every day there is pessimism and another “expert” with another hot opinion on why it is down and when it will rise again.

What you need to know is that no one knows when the recession will end. The best security we can offer is that will finish. When the bull returns, you must be ready to take it by the horns. Long-term investors can use a bear market to their distinct advantage. After all, good investors don’t want to buy high and sell low, do they?

Let’s look at the qualities you’re likely to find in a downtrend stock that will help it rise again. Qualities like profits, cash flow, experienced management, and opportunities for growth come to mind. Microsoft (MSFT 2.26%) he has all this in abundance.

Microsoft has experienced management for turbulent times

CEO of Microsoft satya nadella he leads a team that has done some impressive work recently. We only need to go back to March 2020 to see this leadership in action. With significant economic uncertainty, Microsoft posted record revenue and operating profit for shareholders.

Microsoft Selected Results

Data source: Microsoft. Table by author.

The company has built on these earnings for the first three quarters of fiscal 2022 (Microsoft’s fiscal year ends June). One of the greatest testimonials of a well-run organization is its profitability. Microsoft is hugely profitable and continues to increase margins, as shown below. For comparison, Alphabet recorded an operating margin of 31% in 2021, a very successful year for the company.

Microsoft Operating Margin

Data source: Microsoft. Table by author.

Microsoft’s leadership team has proven its worth in overcoming today’s economic challenges.

Microsoft has its head in the clouds

Microsoft continues to dominate the software industry with its leading Office and Windows products, but its future lies in the cloud. Cloud infrastructure spending is skyrocketing and is forecast to grow 20% this year. according to Gartner. Azure, Microsoft’s cloud infrastructure platform, is locked in a battle for supremacy with Amazonit’s AWS.

This sector is very lucrative. Microsoft’s Azure and other cloud services segment grew a staggering 46% year-over-year in the latest quarter, along with 29% growth for the company’s cloud services and server products. In total, the intelligent cloud revenue stream produced $54.3 billion of Microsoft’s $146.4 billion in sales through the third quarter of fiscal 2022.

Another great quality of Microsoft is that the company never allows itself to stagnate. Instead of being satisfied with recent results, the company announced the blockbuster acquisition of Activision Blizzard (ATVI 1.04%) for $69 billion earlier this year.

Activision will bring popular game franchises like Obligations, candy crushY Star boat. It will make Microsoft the third-largest game company by revenue if the deal receives regulatory approval. These impressive forays into cloud computing and gaming make Microsoft a leader in two more fast-growing fields.

Microsoft is generating its cheapest valuation in years

Microsoft stock is not immune to the market swoon, although its results remain stellar. The stock is down more than 25% this year. This has pushed the price/earnings (P/E) ratio to its lowest level since the March 2020 crash, and before that, in early 2019. Earnings meanwhile continue to rise, as shown below.

MSFT PE Ratio Chart

MSFT PE Ratio data by YGraphics

Investors can also pocket a small but growing dividend. The company’s dividend has increased annually since 2006 and is yielding about 1% at the moment.

No stock is without risk as recession fears linger on the horizon, and Microsoft shares could continue to fall with the market. You are unlikely to catch a stock at its lowest price; Predicting this accurately is almost impossible. An incremental buying strategy, such as dollar cost averageit is an excellent way to mitigate short-term market risk.

Microsoft has all the qualities investors look for in a long-term winner, and it’s firing on all cylinders. The stock has rewarded long-term shareholders for years, which looks poised to continue once the bear returns to hibernation.

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