Technology stocks lagged during the Trump rally, but now have come alive, explains Mark Skousen, editor of Forecasts & Strategies.
Microsoft (MSFT), with a 2.4% yield, is ahead by 5% this year, and up 13% since we first recommended the shares in October.
Microsoft’s profit margins are largely driven by one word: Office! Its core business of Windows, Word, PowerPoint, Excel and Office 365, amounts to 62% of Microsoft’s $20.1 billion in fiscal 2016 operating income.
And its Cloud business is growing rapidly as well. Under previous CEO Steve Ballmer, Microsoft complacently milked its Windows and Office cash cows.
But under the new leadership of Satya Nadella, the software giant is wisely shifting to businesses that work, like the Cloud, and reducing its exposure to costly mobile hardware. Microsoft is also investing in developing new augmented reality (AR) and virtual reality (VR) hardware.
The biggest winner so far this year is Apple (AAPL), with a 1.6% yield; it hit an all-time high after Warren Buffett told CNBC that his investment company has doubled its position in Apple and now owns 2.5% of the company. He said, “Apple has an enormously useful product to people that use it.”
Apple’s estimated iPhone base is now over 700 million users, a 20% increase over last year. Many Wall Street analysts believe that its 10th anniversary iPhone will be revolutionary, because the new iPhone will have wireless charging and will support more memory.
Both Apple and Microsoft will benefit from Trump’s new tax policies if they become law. Currently, they have hundreds of billions of dollars in cash overseas to avoid owing U.S. taxes.
They will be encouraged to repatriate those funds once the U.S. corporate tax rate is reduced to 20% or less, as the Trump administration has been proposing.
Meanwhile, Citibank just raised its price target on Apple to $160 a share. We’re ahead 18% since we recommended it in early January.
