We are always braced for downside volatility, but we continue to believe that the secret to success in stocks is not to get scared out of them, asserts Jason Clark; here the contributing editor to The Prudent Speculator reviews several leading tech stock recommendations following their latest earnings reports.
Computing giant Microsoft (MSFT) earned $2.17 per share in fiscal Q4 2021 (vs. $1.92 est.). MSFT had total revenue of $46.2 billion, versus the $44.3 billion estimate. While Microsoft’s results were well ahead of estimates, the share price actually dropped more than $4 last week. Still, MSFT shares are up 28% this year and the company’s market capitalization is $2.14 trillion.
Microsoft remains one of our larger holdings, a position we are comfortable with at present. The company has seen tremendous growth in Azure, complemented by growth in the Xbox gaming platform and business-social network LinkedIn.
We think the growth trends are unlikely to slow for the foreseeable future, a result in part of MSFT cementing its position in the tech world during the pandemic. Of course, technology changes quickly and Microsoft can’t rest on its laurels, but for now, the company’s position looks robust. Our MSFT Target Price has been increased to $316.
Shares of Apple (AAPL) slumped despite the technology hardware designer and manufacturer posting terrific quarterly results with broad revenue growth. Apple earned $1.30 per share in fiscal Q3, compared with analysts’ expectation of $1.01. AAPL’s revenue was $81.4 billion, more than $7.5 billion ahead of the consensus estimate.
The company did not offer specific guidance due to COVID, which seemed to irritate some analysts, but did indicate directionally that Q4 is expected to see double-digit year-over-year revenue growth along with greater supply constraints than encountered in the June quarter.
We are glad that Apple recently hiked its dividend, but the 0.6% yield still remains far below what the company is capable of paying. We expect a new batch of iPhones in the fall, while the 5G-capable iPhone 12 continues to sell well.
The company’s M1 chip, which powers the iPad Pro, iMac and MacBook, has been highly popular and we expect sales to remain strong. Like many companies, Apple may continue to experience supply chain challenges for the foreseeable future, and we expect management will stay on top of any issues that might arise as a result.
We continue to be fans of Apple and our Target Price has been boosted to $171. It remains one of the largest holdings in our broadly diversified portfolios, which we are comfortable with at present despite its stretched valuation relative to its own history.
Search engine and internet technology leader Alphabet (GOOG) posted adjusted earnings per share of $27.26, versus the $19.35 estimate, in Q2 2021. GOOG had adjusted sales of $51.0 billion, versus the $46.1 billion estimate.
With the company crushing forecasts on the top and bottom lines, shares gained more than 3% to set another all-time high on July 27, before pulling back later in the week. One might have expected a much bigger share price spike, but with the stock having gained nearly 55% this year, another expectation-beating quarter was evidently baked into the price.
Alphabet had $16.4 billion of free cash flow in Q2 and finished the quarter with $136 billion of cash and marketable securities on hand. The board also approved an amendment to the existing $50 billion share repurchase plan which allows the repurchase of Class A and Class C shares.
Unfortunately, even with the mountain of cash, GOOG does not pay a dividend, but share repurchases also count as return of capital so we can’t complain too much.
We think the long term for Alphabet remains bright, and while the company’s valuation is not super inexpensive (the forward P/E is in the 25 range, but it drops near 20 by using 2023 estimates), we believe the terrific balance sheet and great opportunities ahead make it an attractive holding.
Regulatory risk always seems to linger for GOOG and Big Tech names, but at this point, it’s not something that keeps us up at night. Our Target Price for GOOG has been hiked to $3,091.