Buying MSFT again
I spend a lot of time reading for generating good trade ideas.
After which, I analyse a stock before discussing it with Javid and then we decide to invest in it.
I thought sharing part of my process with you might be helpful.
We bought MSFT on April 7 2020 - just 11 trading days after its low during the pandemic.
The stock was purchased mainly based on fundamentals and some technicals, although the latter had less importance than usual due to the historic speed the move was from bullish to bearish.
More recently, MSFT announced better than expected Q4 results defying the coronavirus challenges.
After earnings price pulled back - and on July 27 2020 we again bought into MSFT.
There are more technical reasons available now in the form of a Double Bottom, $200 RN and indecision candle compared to our first position.
Fundamentals also play a part here.
The strong results and long term growth make this company very attractive and the ability to not be affected as much as other companies, such as airlines, makes this stock stand out.
The CEO Satya Nadella said the cloud business boosted the companies results. One study suggests cloud business will continue to grow until 2027 at a compound annual rate of 14.6% and MSFT is positioned in line with that rate of growth.
Below we can see research and development from MSFT, AMZN, GOOGL and IBM.
While MSFT R&D expense is less than that of AMZN and GOOGL, it is still very significant and has been growing in the past 5 years.
MSFT, as a business, is in very good shape. EPS going forward look relatively healthy but after the recent run-up, a rest at these levels is to be expected.
Looking at the big picture, the trend is bullish and we know the trend will have pullbacks along the way.
Assuming the market continues on its bullish run, and depending on your view of MSFT, this stock may be of interest to you too as a good buy longer term.
Below is a hypothetical chart that shows how MSFT would have performed with a 10k investment from 1 year ago. The investment will today be 14.29k which includes the pandemic drawdown.
We do not look for erratic trades to try and hold onto for the long term. We try to buy into smooth stocks that perform well long term and look to RelS for guidance here.
Another point to take into consideration is the depth of drawdown. Here I look to see how far the pullbacks tend to be.
The chart below is weekly and the indicator below shows me how far off the highs price is.
The red dotted horizontal line (on the sub-chart indicator) is set to 10%.
As you can see, the majority of pullbacks have been less than 10%.
For me, I like that - as I have an idea of what to expect during pullbacks and where I can add to my positions with little time or analysis.
The purpose of this post was to share with you all part of my process and provide you with some of my thesis on why we have taken a new allocation on MSFT.
Of course, as you will have realised, this is not a short-term trade but more of an investment long term.
It took many years to create an elegant solution that worked very well for me long term so I hope this helps you all.
Let's go trade!
