Large-cap technology stocks, particularly old-school names, have really been on the rise, though they remain an untold story this year.
Microsoft Corporation (MSFT) is on a major upward price trend and is getting close to its all-time record-high set during the technology bubble of 1999.
The company’s stock market performance has been tremendous as of late, rising from around $27.00 a share at the beginning of 2013 to its current level of approximately $47.00, its 52-week high. Its share price has increased by more than $10.00 this year alone. (See “Eight Stocks to Beat the Street.”) And that’s with a current dividend yield of 2.6% and a trailing price-to-earnings ratio of just less than 15.
I think Microsoft is going to keep on ticking higher right into 2015 based on its sales and earnings growth momentum combined with a solid interest on the part of institutional investors seeking earnings predictability in a slow-growth environment.
Microsoft would be a solid investment-grade pick in this market for those investors considering new positions and looking for income.
Even without the company’s dividends, it should experience solid sales and earnings growth going into its next fiscal year. And in an environment where institutional investors are bidding old-school names that are offering earnings reliability, $50.00 a share shouldn’t be too difficult for Microsoft to achieve by year-end.
Share price momentum in previous technology growth stocks like Microsoft and Intel is indicative of a bull market, but one that’s still risk-averse.
Price momentum in these stocks is healthy for the broader market because large-cap tech companies like Amazon.com, Inc. (AMZN) and Facebook, Inc. (FB) are very expensively priced, even with their above-average operational growth.
One of the many trends to emerge within the last several years is the rising success investors have experienced while owning dividend-paying blue chips at a lot less risk than highflyers. And it’s all because institutional investors are just as skittish, choosing to pay for earnings reliability in a slow-growth world.
I think this trend is likely to continue well into 2015 and an environment of rising interest rates. This is why many of the old-school blue chips like Microsoft should continue to keep ticking higher on the stock market, all the while offering rising earnings, dependable dividends, and lower investment risk.