Original Publish Date: March 20, 2018
One of our top picks over the next few months is Microsoft. With their margins increasing and continued accelerated expansion in their Commercial Cloud platform could be grounds for a broader comfortability in their capacity to sustain low to mid-teens EPS growth. Longer term, Microsoft is also well positioned to expand their Azure Machine learning model. With a consensus PT of $105 and a high of $120, MSFT appears to be well undervalued in the low 90s. From today’s close at 92.89, the 92.50/100 call spread we opened captures a 7.65% move to the upside. It was deemed appropriate to open a spread rather than buy shares outright because of the current risk/reward profile. It cost $3.36 to open a $7.5 spread, resulting in a potential profit of 123.2% or about $276 a week over the course of 18 weeks.
Current risks could involve weaker than anticipated growth across their cloud platforms as well as investments in data centers that could lessen margin growth.
While this trade was opened with the premise to produce more than a 100% return, early closeout could be considered if the rate of price growth begins to slow more rapidly than initially predicted. Ideally, we would like to see stability around 96-97 before reanalyzing the possibility of an early closeout.
Disclosure: I am/we are currently long on MSFT.
This article expresses my own opinions. I am not receiving compensation for this article – other than from Honey Investments. I/we have no business relationship with any companies whose stock is mentioned above.