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It's been an extraordinary year for stocks.

On May 18th, the S&P fell 4%, and the Nasdaq almost 5%, the worst day for the market since June 11th, 2020.

Ycharts

For many popular growth stocks, it's not just been a bear market but a complete collapse.

Charlie Bilello

Tech is getting slaughtered, with even some of the world's best growth names down 50% to 75%...in just 4.5 months.

Warren Buffett is famous for saying, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

So today, I wanted to bring to your attention an opportunity we haven't seen in over two years.

Microsoft (NASDAQ:MSFT) is arguably the greatest company on earth.

And for the first time since the pandemic, it's trading below fair value.

So, let me show you the four reasons why Microsoft isn't just a potentially good buy here, but potentially the ultimate Buffett-style wonderful company at a fair price.

Or to put it another way, let me show you why I just bought MSFT and you might want to consider doing the same.

Bottom line up front, MSFT is an exceptional company.

MSFT is in a 25% bear market not justified by its strong fundamentals.

2024 Growth Consensus

(Source: FAST Graphs, FactSet)

MSM's growth thesis remains firmly intact.

(Source: Portfolio Visualizer Premium)

MSFT has been a very consistent market-beater over the last 36 years, with 17+% average rolling returns.

(Source: FAST Graphs, FactSet)

(Source: FAST Graphs, FactSet)

If MSFT grows as analysts expect by 2024 it could deliver 28% total returns, or 13% annually.

(Source: FAST Graphs, FactSet)

(Source: FAST Graphs, FactSet)

By 2027, if MSFT grows as expected (15.4% CAGR) and returns to historical fair value, it could deliver 95% total returns or 14% annually.

10 Year Inflation And Risk-Adjusted Expected Return

(Sources: Morningstar, FactSet, Ycharts)

(Source: Portfolio Visualizer Premium)

(Source: Portfolio Visualizer Premium)

MSFT has delivered 1,733X inflation-adjusted returns since April 1986, about 126X better than the S&P 500.

What do analysts expect in the future?

(Source: DK Research Terminal, FactSet)

Even if MSFT only grows as expected over the next 10 years, that's a very impressive 4X inflation-adjusted consensus potential.

(Source: DK Research Terminal, FactSet)

MSFT can't beat the market by 126X in the future, but it could double the market over the next decade and outperform by impressive amounts in the coming decades.

DK

(Source: DK Automated Investment Decision Tool)

For anyone comfortable with its risk profile, MSFT is one of the most reasonable and prudent hyper-growth Ultra SWANs you can buy today.

There are many ways to measure safety and quality and I factor in pretty much all of them.

The Dividend Kings' overall quality scores are based on a 244-point model that includes:

Dividend safety

Balance sheet strength

Credit ratings

Credit default swap medium-term bankruptcy risk data

Short and long-term bankruptcy risk

Accounting and corporate fraud risk

Profitability and business model

Growth consensus estimates

Management growth guidance

Historical earnings growth rates

Historical cash flow growth rates

Historical dividend growth rates

Historical sales growth rates

Cost of capital

GF Scores

Long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv, and Just Capital

Management quality

Dividend friendly corporate culture/income dependability

Long-term total returns (a Ben Graham sign of quality)

Analyst consensus long-term return potential

In fact, it includes over 1,000 fundamental metrics including the 12 rating agencies we use to assess fundamental risk.

credit and risk management ratings make up 41% of the DK safety and quality model

dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model 87% of blue-chip dividend cuts, the ultimate baptism by fire for any dividend safety model.

How does MSFT score on our comprehensive safety and quality models?

MSFT Dividend Safety

Approximate Dividend Cut Risk In Pandemic Level Recession

Long-Term Dependability

Overall Quality

5% Margin of Safety For A Potentially Good Buy

Microsoft is the #1 highest quality company on the DK Master List.

And that's saying something because look at what's on that list.

The DK 500 Master List includes the world's highest quality companies including:

All dividend champions

All dividend aristocrats

All dividend kings

All global aristocrats (such as BTI, ENB, and NVS)

All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

Basically, MSFT is as close to God's own company as can exist on Wall Street.

Microsoft was founded in 1975 and is today the #1 largest software company on earth and the 2nd biggest in cloud computing.

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader. In our view, Microsoft has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. Finally, Microsoft exited the low-growth, low-margin mobile handset business and is driving Gaming to be more cloud-based. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins." -Morningstar

Satya Nadella pivoted the company in 2014 to focus on recurring revenue and cloud computing.

Statista

In 2021, cloud computing grew at 37% while Microsoft's cloud business grew at 50%.

Cloud Computing Market Size Worth $1,554.94 Billion by 2030: Grand View Research, Inc.

The rest is here:
Microsoft: It's Finally Time To Buy One Of The World's Greatest Companies - Seeking Alpha