Earnings season makes for some rich trades. While many traders expected shares of Microsoft (MSFT) to rally to a $2 trillion valuation after earnings, the company instead surprised with a drop instead.
The company saw revenue up 19 percent compared to a year ago, its highest level. And the company beat analyst expectations. But revenues from the company’s Azure division, where it does its cloud services, seemed a little light to shareholders.
The end result is that, in spite of great earnings, shares sold off rather than making an anticipated rally.
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However, that does point to some solid profit potential ahead. That’s because Microsoft is still a tech dominator.
With a number of different divisions, Microsoft has set itself up to profit from nearly any economic condition. In fact, the company reported nearly $3 billion in ad revenue from its LinkedIn division alone!
Action to take: The company is showing strong signs of secular growth, and any pullback can be used as a buying opportunity. Shares under $260 offer investors a nearly 0.9 percent dividend yield, but one with a high growth rate behind it.
For traders, betting on the longer-term uptrend in shares looks attractive here. The September $275 calls, which were going for about $10.70 before the earnings report and under $10 after, are a buy up to $10. They can likely deliver mid-to-high double-digit returns in a few months, and can be closed out before expiration with a solid profit… possibly just in time for the next quarterly earnings trade.
Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.