With Windows 10 running on more than 900 million devices, and a market value recently near $1.4 trillion, Microsoft (Nasdaq: MSFT) is huge. It’s hard for huge companies to grow as briskly as smaller ones, but for the fiscal 2020 second quarter (which ended Dec. 31), Microsoft reported revenue of $36.9 billion, up 14% year-over-year, while its diluted earnings per share soared 40%.
Microsoft has the brand recognition, network-effect advantage and resources to continue winning in the markets it serves. Its Office software, featuring Word and Excel, is still in high demand after all these years. Office commercial products, including Office 365 subscriptions, have been growing quickly.
Under CEO Satya Nadella, the company has spread its reach well beyond the PC to mobile devices and the cloud. Microsoft’s Azure cloud computing service has tremendous momentum, with revenue surging 62% year-over-year in the last quarter.
Microsoft’s ability to adapt to changing environments in technology, such as via its cloud-computing offerings, bodes well for its future, and investors should also like its high profit margin and growing dividend. Owning this stock seems like a no-brainer for the 21st century. (The Motley Fool owns shares of Microsoft and has recommended Microsoft shares and also the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft.)
Ask the Fool
Q: What’s a moving average? – F.D., Norman, Oklahoma
A: A moving, or “rolling,” average is used to smooth out data, to help reveal long-term trends. Imagine a list of a location’s temperatures on Feb. 14 over 25 years. Some unusually high or low numbers would make it hard to see a trend. Instead, a moving average would show you the average temperature over subsets of those years. For example, to get a three-year moving average, you’d first average the numbers for years one, two and three. Then you’d average years two, three and four, then years three, four and five – and so on, ending with years 23, 24 and 25. You’d end up measuring 23 three-year periods. While a graphed line of the original 25 numbers might have been very jagged, the 23 three-year averages would produce a smoother line.
Some investors try to guess where various stocks are headed by studying moving averages of their stock prices. However, it’s better to focus on factors such as companies’ financial health and growth prospects.
Q: I know that Facebook owns Instagram and WhatsApp. How can I know if one company is owned by another? – R.B., Omaha, Nebraska
A: You can call it and ask – or visit its website and click on a link titled something like “About Us.” Investigating on Google can also work.
Many familiar names are owned by other familiar names. For example, among many other holdings, Disney owns ESPN, ABC and Pixar. PepsiCo owns Frito-Lay, and the brands Gatorade and Quaker Oats. Unilever owns Ben & Jerry’s, and the brands Axe and Dove. Google parent Alphabet also owns YouTube. Microsoft owns LinkedIn and Skype. And Berkshire Hathaway owns Dairy Queen, Fruit of the Loom, See’s Candies, The Pampered Chef, GEICO and the BNSF railroad.
My dumbest investment
My dumbest investment move of the last decade was listening to too many people. Doing so kept me from investing. This decade, no more! I’m going to spend a year paper trading, and then I’ll go live. – M.J., online
The Fool responds: Many people have sound financial advice to offer, but not everyone does. A lot of people, for example, recommend avoiding the stock market entirely, seeing it only as a place to gamble and lose money. Many people do gamble with stocks and lose their shirts, but that tends to happen when they don’t know what they’re doing: They chase high-flying, overvalued stocks, they load up on penny stocks of companies with no earnings or prospects, or they try day-trading, frantically jumping in and out of stocks every few days or even hours.
If, instead, you take time to learn about investing and set reasonable expectations, you can build wealth. You don’t necessarily need to wait a year, either. And perhaps lose the idea of “trading,” in the sense of buying and selling frequently. You might just park your long-term money in a low-fee S&P 500 index fund and keep adding to it over many years – that’s all most of us need to do. Or find 10 to 20 individual companies to distribute your money across – businesses you understand, which feature increasing sales and earnings, rising profit margins, competitive advantages and attractive prices.
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