Is It Too Late to Buy Microsoft?

Alan Farley
Published: Nov 23, 2021, 13:08 GMT+00:00

The tech giant has the tools in place to outperform the competition well into 2022.


In this article:

Dow component Microsoft Corp. (MSFT) has outperformed its mega-cap rivals so far in 2021, posting a phenomenal 53% return. It hasn’t touched the 200-day moving average in 20 months or carved a single 20% pullback since March 2020.  In addition, the stock has gone straight up since the start of October, adding nearly 25% into Monday’s mid-session peak. Of course, this lopsided performance won’t last forever because mean reversion practically guarantees a fall from grace, sooner or later.

Well-Positioned for 2022

Mr. Softee must continue to fire on all cylinders to attract new investors but has the tools in place to outperform the competition well into 2022. Internet-as-a-Service (IaaS), cybersecurity, and productivity segments continue to post excellent year-over-year growth, relieving pressure from an operating system that’s grown resistant to profitable upgrades. And let’s not forget margins, which have expanded from 30% to 42% in just five years.

Despite the torrid advance, Wells Fargo analyst Michael Turrin just reaffirmed his belief that Microsoft shares will continue to rise, noting “we acknowledge shares are trading at historical highs, but think this is justified given: (1) market positioning is the best it’s ever been, (2) core businesses have evolved favorably over the past decade, including numerous strategic additions (i.e. LinkedIn, GitHub, etc.), and (3) strong incumbent position in a tight market, which we view as especially favorable in the current environment”.

Wall Street and Technical Outlook

Wall Street consensus this year couldn’t be more bullish, with a ‘Buy’ rating based upon 31 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. More importantly, no analysts are recommending that shareholders close positions. Price targets range from a low of $294 to a Street-high $410 while the stock is set to open Tuesday’s session about $26 below the median $364 target. This modest placement should support additional upside, albeit at a slower pace than the last 10 months.

Microsoft has posted steady upside since breaking out above the 1999 bubble peak near 60 in 2016. It pulled back to a 3-month low during 2020’s pandemic decline and turned higher, breaking out to new highs in June. The stock has posted three intermediate breakouts since that time, including a high volume gap above resistance near 300 after a strong Q3 2021 earnings report.  Weekly relative strength is overbought and slowly rolling over, suggesting the stock is about to enter yet another intermediate pullback.

For a look at today’s economic events, check out our earnings calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

About the Author

Alan Farley is the best-selling author of ‘The Master Swing Trader’ and market professional since the 1990s, with expertise in balance sheets, technical analysis, price action (tape reading), and broker performance.

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