Strong Earnings Beats Suggests a Trade on this Big Tech Winner

Earnings season is off to a strong start. Despite a few high-profile misses, most companies have beaten expectations. One company has had a series of better-than-expected numbers in the past year that’s about to report earnings once again.

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  • That company is Microsoft (MSFT). The tech giant has seen explosive growth in the past year thanks to a shift to remote work during the pandemic, and analysts are expecting revenue up 17 percent this quarter.

    Shares are at all-time highs, but are only up 52 percent in the past year, just a slight outperformance relative to the S&P 500.

    Yet the company’s software, services, apps, video games, and other technologies allow the company to generate a 33 percent profit margin, and both earnings and revenue posted strong returns last year.

    Action to take: Shares are reasonably priced ahead of earnings, although the dividend yield is now under 0.9 percent thanks to the recent rally in shares. Over time, the company does offer a growing dividend, which combined with its usual quarterly earnings beats, should do well for long-term shareholders.

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  • Traders would be better off with an options trade ahead of earnings for a potential pop higher. The July $275 calls, last trading for about $5.90, offer a potential mid-double-digit return if shares jump following the company’s earnings on April 27th.

     

    Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company. The author receives no compensation from any of the companies mentioned in this article.