Microsoft Corp.Long
MSFT - The Best Name In Tech (Long 12/21/18 $105 Calls)
Updated
At the beginning of 2018, I mentioned on Seeking Alpha (SA): "MSFT is the best name in Tech."
At the same time, many analysts on SA (especially ones that rely on Discounted Cash Flow analysis) suggested that it MSFT was severely overvalued. At least four article came out before MSFT most recent earnings that said it was at least 30%-65% overvalued. One author noted on 6/22/18:
"Microsoft has critically deviated from its long-term exponential trend. The comprehensive analysis shows that Microsoft is overvalued in terms of its multiples. The interdependence between the growth of Microsoft’s key financial indicators and its multiples indicates that the company is overpriced too." seekingalpha.com/article/4183252-microsoft-valuation-update
Fast-forward and on July 20, 2018, MSFT hit an all-time high after strong earnings results. Average analyst price target is now ~$120.
What did I see that these MBA/CFA analysts didn't? Here's what I posted on SA on 7/23/18:
"Trying to find logic with a stock's price action with its valuation multiple will only lead to not making money in the stock market. Rarely do stocks ever trade in line with "valuation metrics" (if they did, AAPL would be a $300 stock by now, TSLA would probably be a $50 stock, MSFT would probably be an $80 stock -- no need to go there for NFLX or the rest). Funny to see these type of exercises that are devoid of reality."
As a technical analyst, it was apparent to me that MSFT was a solid name solely by looking at the price action it went through during the market decline back in Feb.18. Just go scan charts out there during this time and you will see that MSFT held up extremely well while everything else was selling off hard. Institutional money was still flooding in, and more importantly, they weren't selling like so many other names. On top of that, MSFT was generating strong earnings growth driven by the turnaround from Satya Nadella and the Azure platform. MSFT demanded a higher premium.
As someone who's studied finance and has taken many technical analysis classes, I can tell you that only the latter will make you real money (in my experience). The former is there for you to fulfill some intellectual exercise. Don't get me wrong, I definitely look at fundamentals, but at the end of the day, what drives my decisions is purely technically based. I learned this over the years through my mentor who is a very successful economics professor and retired hedge fund manager (i've seen his trades, bank statements, track record etc.). I will share more insights into what I've learned soon.
On 7/13 I posted on SA: seekingalpha.com/stocktalk/100176476:
"Epic run-up so far this year, decided to trim/sell position across 3 portfolios:
MSFT - 9/21/18 $95 Calls - up 108% (sold half)
MSFT - 9/21 $92.5 Calls - up 148% (sold all)
MSFT - 1/18/19 $85 Calls - up 46% (no change)
This is on top of my position I sold on 2/21/18: (4/20/18 $85 Calls - 108%). Needless to say, it's been an amazing year so far! Continue to reiterate that MSFT is the best name to own in Tech. However, have to admit that shares are a bit too extended for my taste right now (RSI showing overbought levels). Puts are looking attractive for a short-term pullback."
Sure enough couple days after I posted this I went long the 9/21/18 $110 Puts and close it a within a couple of days to capture a 91.86% gain. Last week, given the pullback I decided to go long the 12/21/18 $105 calls. I will add on any weakness.
I am posting this to share my story and because I firmly believe that MSFT will hit the
1T market cap a lot sooner than many expect. Which means there's so much room to run in this name -- I'd be a buyer today.
"Piper Jaffray raises its Microsoft target to near1T market cap": seekingalpha.com/news/3372136-piper-jaffray-raises-microsoft-target-near-1t-market-cap
Feel free to share your stories, thoughts and ideas!
Cheers!
At the same time, many analysts on SA (especially ones that rely on Discounted Cash Flow analysis) suggested that it MSFT was severely overvalued. At least four article came out before MSFT most recent earnings that said it was at least 30%-65% overvalued. One author noted on 6/22/18:
"Microsoft has critically deviated from its long-term exponential trend. The comprehensive analysis shows that Microsoft is overvalued in terms of its multiples. The interdependence between the growth of Microsoft’s key financial indicators and its multiples indicates that the company is overpriced too." seekingalpha.com/article/4183252-microsoft-valuation-update
Fast-forward and on July 20, 2018, MSFT hit an all-time high after strong earnings results. Average analyst price target is now ~$120.
What did I see that these MBA/CFA analysts didn't? Here's what I posted on SA on 7/23/18:
"Trying to find logic with a stock's price action with its valuation multiple will only lead to not making money in the stock market. Rarely do stocks ever trade in line with "valuation metrics" (if they did, AAPL would be a $300 stock by now, TSLA would probably be a $50 stock, MSFT would probably be an $80 stock -- no need to go there for NFLX or the rest). Funny to see these type of exercises that are devoid of reality."
As a technical analyst, it was apparent to me that MSFT was a solid name solely by looking at the price action it went through during the market decline back in Feb.18. Just go scan charts out there during this time and you will see that MSFT held up extremely well while everything else was selling off hard. Institutional money was still flooding in, and more importantly, they weren't selling like so many other names. On top of that, MSFT was generating strong earnings growth driven by the turnaround from Satya Nadella and the Azure platform. MSFT demanded a higher premium.
As someone who's studied finance and has taken many technical analysis classes, I can tell you that only the latter will make you real money (in my experience). The former is there for you to fulfill some intellectual exercise. Don't get me wrong, I definitely look at fundamentals, but at the end of the day, what drives my decisions is purely technically based. I learned this over the years through my mentor who is a very successful economics professor and retired hedge fund manager (i've seen his trades, bank statements, track record etc.). I will share more insights into what I've learned soon.
On 7/13 I posted on SA: seekingalpha.com/stocktalk/100176476:
"Epic run-up so far this year, decided to trim/sell position across 3 portfolios:
MSFT - 9/21/18 $95 Calls - up 108% (sold half)
MSFT - 9/21 $92.5 Calls - up 148% (sold all)
MSFT - 1/18/19 $85 Calls - up 46% (no change)
This is on top of my position I sold on 2/21/18: (4/20/18 $85 Calls - 108%). Needless to say, it's been an amazing year so far! Continue to reiterate that MSFT is the best name to own in Tech. However, have to admit that shares are a bit too extended for my taste right now (RSI showing overbought levels). Puts are looking attractive for a short-term pullback."
Sure enough couple days after I posted this I went long the 9/21/18 $110 Puts and close it a within a couple of days to capture a 91.86% gain. Last week, given the pullback I decided to go long the 12/21/18 $105 calls. I will add on any weakness.
I am posting this to share my story and because I firmly believe that MSFT will hit the
1T market cap a lot sooner than many expect. Which means there's so much room to run in this name -- I'd be a buyer today. "Piper Jaffray raises its Microsoft target to near
1T market cap": seekingalpha.com/news/3372136-piper-jaffray-raises-microsoft-target-near-1t-market-capFeel free to share your stories, thoughts and ideas!
Cheers!
Note
MSFT is slowing grinding higher, current options are up ~25%. However, as the market approaches its ATH, I highly suspect a short-term pullback as investor take profits. I think this will be a good buy the dip moment. Be prepared with cash.
Here's what I'm doing now to protect gains and hedge my MSFT position: I'm long the 9/21/18 $105 Puts.
The lowest I see MSFT going short-term is ~$102-$105. I will sell my puts around that level. If MSFT continues to go higher, great! The gains will outweigh any losses from the hedge.
Cheers!
Note
I'm in the following calls: -12/21/18 $110
-6/21/19 $97.50
Note
MSFT 12/21/18 $110 Calls -- adding more.
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