We recently published a list of 12 Best Quality Stocks to Invest in Now. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other best quality stocks to invest in now.
Tom Lee, co-founder of Fundstrat Global Advisors, believes that a significant rebound is in the offing, despite the tough start to the year. The strategist opines that there is a possibility of ~10% – 15% bounce over the coming months. In an interview with CNBC, he stated his expectations about March, April, and May witnessing the rally. Therefore, missing critical trading days can be a mistake for investors.
What Lies Ahead?
Lee believes that investors can consider buying as the markets are unsettled. In an interview with CNBC, he went on to explain that the market’s 10 best days last year resulted in the addition of up to 20 percentage points for the broader S&P 500. However, if we exclude these 10 days, the index increased by only 4%. According to him, the best days might be around the corner. If there are tensions related to the growth or related to the employment market, Trump or the US Fed can intervene to bring some stability. These are the favourable catalysts for the upcoming weeks, says Lee. Overall, he believes that a large chunk of the bad news has been priced in as markets have seen a significant decline.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Signs of Economic Strength Remain
Morningstar, while echoing the views of Adam Hetts (Janus Henderson Investors portfolio manager), mentioned that the longer-term perspective is expected to provide investors a silver lining. Hetts believes that there are bright spots in the international markets such as Europe and China, that have surpassed the performance of the US stocks since the beginning of the year. Even though the mega-cap tech stocks have been declining, they are getting cheaper as compared with the elevated valuations just a few months ago.
According to experts, there are several signs of economic strength. Gus Faucher, chief economist for PNC Financial Services Group, told Morningstar that consumers continue to spend amidst weakness in the sentiment data. Also, the labor market has been holding up. Overall, the chief economist doesn’t see any sort of fundamental weaknesses in the broader economy that can signal a problem. As per Morningstar chief US market strategist David Sekera, the investors are required to focus on the fundamentals and valuations, while maintaining a long-term view.
Our Methodology
To list the 12 Best Quality Stocks to Invest in Now, we sifted through the holdings of iShares MSCI USA Quality Factor ETF. Next, we chose the stocks that are popular among hedge funds. Finally, the stocks were arranged in ascending order of their hedge fund sentiment, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 317
TD Cowen reiterated a “Buy” rating on Microsoft Corporation (NASDAQ:MSFT)’s stock, maintaining a price objective of $475.00. As per the analyst, J. Derrick Wood, there has been continued strong demand for the company’s Azure AI services. While the company’s data center buildout strategy has been entering a different phase, there has not been a significant shift in the overall approach. Microsoft Corporation (NASDAQ:MSFT) remains focused on maintaining a healthy balance between AI and non-AI workloads.
The tech giant continues to experience robust demand for its Azure AI solutions and remains optimistic about the prospects for the Copilot offering. Microsoft Corporation (NASDAQ:MSFT) is also focused on developing new routes for adoption and monetization of Copilot. Such efforts form part of its broader strategy to capitalize on the elevated demand levels for AI-powered solutions and services. The reaffirmation of the rating and price target comes amidst Microsoft Corporation (NASDAQ:MSFT)’s emphasis on expanding the cloud and AI services. The company’s focus on AI has been intensified as it continues to make strategic moves to integrate AI throughout its product portfolio.
Mairs & Power, an investment advisor, released the Q4 2024 investor letter. Here is what the fund said:
“Unlike the dot-com companies that operated at the turn-of-the-century, many of today’s technology companies are established businesses with significant cash flows. We have argued, and continue to argue, that many of these investments are perfectly aligned with our investments process in that they embody durable competitive advantages, above-average growth prospects, and excellent management teams.
A perfect example is Microsoft Corporation (NASDAQ:MSFT), which has grown to become the largest holding in the Growth Fund. Microsoft has a near monopoly on the office software productivity market with its Microsoft Office Suite. The company’s Azure platform is a leader in cloud computing and has been steadily gaining share. Thanks to its Office and Azure products, the company is deeply embedded within many enterprise IT ecosystems. Therefore, it should be well-positioned to expand its presence within its customer base, as it rolls out premium-price AI solutions. The company is not resting on its laurels and plans on spending an astounding $80 billion in 2025 to build out AI data centers.”
Overall, MSFT ranks 1st on our list of best quality stocks to invest in now. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
