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Microsoft: 2021 Top Pick Still Has Room To Grow

Mar. 02, 2021 6:00 AM ETMicrosoft Corporation (MSFT)12 Comments


  • Despite the recent run, I believe Microsoft stock still has legs, especially once Big Tech weathers the current selling pressures.
  • Fundamentally, Microsoft looks very compelling. It runs a diversified, well-balanced business model that has been firing on all cylinders.
  • Once the Nasdaq finds its footing, I expect to see MSFT tag along for the ride that may finally take it to the $2 trillion equity valuation.
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Back in November, I chose Microsoft (NASDAQ:MSFT) as my top pick within the FAAMG group for 2021. So far, the company and stock have not disappointed.

Shares have been up 6% year-to-date, even though the mega-cap, tech and growth factors have underperformed the broad market: the Nasdaq (QQQ) was flat for the year, as of the end of February, compared to the Russell 3000's (IWV) 3% gains. Despite the recent run, I believe MSFT still has legs, especially once Big Tech weathers the current selling pressures driven by rising rates and rotation to cyclical stocks.

Credit: Mohammad Rezaie @ Unsplash

Off to the races

The YTD chart below shows how MSFT has outperformed nearly all its direct peers so far in the new year.

Within FAAMG, only Alphabet (GOOG) (GOOGL) stock has topped the performance of the Redmond, Washington-based company's shares in 2021, and by quite a stretch: up 18% in only two months. Other Big Tech names outside FAAMG have been trailing Microsoft as well, including high-fliers Tesla (TSLA), Netflix (NFLX) and Nvidia (NVDA).

In my view, both MSFT and GOOG have been benefiting from one key development that played out through most of last year. Probably not a coincidence, both stocks were the worst-performing Big Tech names in 2020, alongside Facebook (FB) – which I believe to be exposed to more meaningful fundamental risks.

The coiled-spring effect seems to have helped to propel MSFT and GOOG higher in the first couple of months of the current year. While some of the upside of investing in either has already been captured, I think that the former still has a long runway ahead.

Room to grow

When it comes to fundamentals, Microsoft looks very compelling.

It helps that the company runs a diversified, very well-balanced business model that

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This article was written by

DM Martins Research profile picture

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long MSFT, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

Used the sell-off yesterday to build a small position in MSFT. Long 🍎 by the way...
AnthonyGiordano profile picture
Thank you for a re-look at your 2021 pick. Long Microsoft for many many years. Great CEO and management. Jedi contract should help boost growth and earnings and growing their gaming division is smart as that segment is young and has growth potential IMHO. I’m an older investor so although the divy is low, I’m happy with the extra income along with such growth potential. Good luck to all my fellow shareholders of MSFT.
A comparison with Google would have been useful and very relevant especially as I believe it has outperformed MSFT and other big tech stocks last few mths
You forgot to mention Microsoft Teams. Monster eating Zoom’s and Slack’s lunch
James 62 profile picture
IMO. There are three stock must owns. MSFT, Apple and JNJ. Best companies in the world.
Great company MSFT, outstanding CEO, had a terrific run last year up 46%. I would like to see a higher yield.
richjoy403 profile picture
@D.M. Martins Research -- Agreed on all counts.
$AAPL ($2.2 Trillion market capitalization) having reached that benchmark $2 in August, is likely to be first joined by $MSFT to form a prestigious "$2 Trillion Club", as it needs only to grow by 12.5% to attain that coveted benchmark. Lagging in the hunt are Amazon (needs 26.5% growth) and Alphabet/Google (needs 43.4% growth). There are presently no other US companies in the hunt, nor European, Japanese, Korean, or Chinese companies.

IMO, Satya Nadella (appointed CEO in 2014) is the 21st century epitome of the positive impact a new CEO might bring to a mediocre giant suffering under mediocre management (e.g., Steve Balmer).

Of course, at this point, what matters most to Apple, and soon Microsoft, is the ability to put $2 Trillion in the rear-view mirror, and strive for $3 Trillion.

IMO, both companies have the talent and management to advance another 50+% within 3 to 6 years--depending upon the strength of world economies, and timing of the next worldwide (or nearly so) period of economic distress/recession--China being a wildcard. (The 'rule of large numbers' notwithstanding.)

Apple is the more consumer oriented; Microsoft the more enterprise oriented.

In the Info Tech Sector, I'm long APPL, AVGO, CSCO, INTC, MA & MSFT, as well as these funds: BST, QQQ, WCLD & XLK

BTW, Carter Worth (dubbed 'Chartmaster' by CNBC), recently made a convincing case on Fast Money that Mr. Market does not make significant advances without the Tech stocks leading the way. (Regrettably, I can't locate a link to offer)
DM Martins Research profile picture
@richjoy403 Well said! Thanks for the thorough note.
ChuckXX profile picture
Not wanting to pick on your article but there really isn’t anything there that most of us already didn’t know. I enjoy articles where the writer explains what a company is going to do over the next 5 years to keep the EPS growing.
As long as everything is overvalued, Microsoft looks like as good a bet as anything. But be prepared for the day when everything gets fairly valued. The Ponzi scheme being run by central governments is doomed to fail eventually.
AceVentura profile picture
@joemrogers “fairly valued” is a cliche. Look to the future, what is the fair value of cloud computing? I am old enough to look back at earning projections I made in the past-they didn’t account for major innovations correctly. I suspect many companies are under valued. Including MSFT.
Chance888 profile picture
@joemrogers - Fair value is solely dependent on how many people like the stock and purchase it. Nothing more, nothing less.
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