Microsoft’s business diversity makes it resilient


Tech giant Microsoft didn’t escape last year’s tech stock sell-off; its shares were last trading 20% ​​below their 52-week high. There are many reasons to expect the stock to recover and appreciate over the long term.

First off, it’s diverse, with divisions covering software and hardware as well as business and consumer products and services, but no single category accounts for more than 50% of the business. Microsoft’s largest division, server products and cloud services, is also growing the fastest — its revenue rose 20% year over year for the quarter ended December. This line of business includes Microsoft’s Azure cloud infrastructure and platform services, which grew 31%.

Microsoft groups its companies into three broad categories: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Even during the second-quarter downturn in consumer and PC sales, Microsoft made gains in all three categories.

Microsoft’s diverse profit streams make it an incredibly resilient company. Diversified, rising earnings also allow Microsoft to invest in new and exciting innovations like ChatGPT’s parent company, OpenAI, while returning cash to shareholders via dividends and share buybacks. (The Motley Fool owns shares of Microsoft and has recommended Microsoft.)

ask the fool

From SK, Midland, Mich.:. Is a company with a $75 stock price bigger and financially healthier than one with a $25 stock price?

The fool replies: Not necessarily. A stock price alone doesn’t say much. You need more information, e.g. B. How many shares are there. If the first company only has 1 million shares, its value would be $75 million, while the second company with 1 billion shares would be worth $25 billion. Another useful measure might be how much earnings the company has generated per share.

To get an idea of ​​a company’s financial health, examine its financial statements, such as B. its balance sheet and income statement. For example, you can see how much cash and debt it has and how fast its earnings and profits are growing.

A company with declining sales and rising debt is unlikely to be attractive at all costs. Instead, a promising investment would grow rapidly, expanding its profit margins and gaining market share — all while appearing undervalued by other investors. This applies regardless of the share price.

Remember: A $2 stock may really only be “worth” 10 cents a share, while a $500 stock could be worth $1,000 — and that’s where it’s headed.

From: QAH, Greenville, NC: What is an orphan drug?

The fool replies: It’s a drug developed to treat a rare disease or condition — one that affects fewer than 200,000 people in the United States.

As you might imagine, pharmaceutical companies are unlikely to make treatments for such conditions without millions of customers helping them recoup their development costs. Because of this, the Orphan Drug Act of 1983 was passed to give them financial incentives to do so.

The School of Fools

You may associate the term “trusts” with wealthy people, and it’s true that many higher-income people include one or more trusts in their estate plans. But middle-class people can also benefit from using trusts.

A trust is a legal document that can ensure that your financial assets are passed on to your beneficiaries as you wish – during lifetime or after. Beneficiaries can include your spouse, children, other family members, charities, or pets. The financial assets in the trust are managed either by you or by one or more trustees, who can be trusted individuals or organizations.

A trust allows you to specify that assets go to named beneficiaries at certain times, e.g. B. after your death or when a child reaches a certain age (e.g. 30). It can also help you distribute the rest of your belongings. And while a traditional will can do this, wills only come into effect after your death. A trust can provide accommodation if you are temporarily or permanently disabled and unable to manage your assets.

Trusts can help you and your beneficiaries defer or avoid some taxes, and assets passed through a trust are often excluded from probate. This can make asset transfers faster and cheaper, and keep your arrangements more private.

There are many types of trusts, but they are usually either revocable or irrevocable. A revocable trust, also known as a living trust, is one that you can change or cancel (revoke) up until your death. An irrevocable one is generally permanent – but may offer more tax benefits.

Trusts are typically more complicated than wills and often cost more to create. If you are considering a trust, read more about it, maybe in The Complete Book of Wills, Estates & Trusts (4th Edition): Advice That Can Save You Thousands of Dollars in Legal Fees and Taxes by Alexander A. Bove Jr. and Melissa Langa (St. Martin’s Griffin, $20). And consider consulting a professional, e.g. B. a lawyer specializing in inheritance law.

My stupidest investment

From JCS, online: My worst investment move was buying shares in iClick Interactive Asia Group. I read a little story that suggests it works with Facebook. That sounded good. I bought my shares for a little less than $18 a share – but I think the company’s stock is now less than $0.60 a share!

The fool replies: iClick’s shares recently traded near $3.60 apiece — but that’s largely due to a 1:10 reverse split that occurred in November 2022. Regular splits feature a larger number followed by a smaller one: a 3:1 split, for example, gives you three shares for every share you own, while the share price is reduced proportionately so that the total value of your holding remains roughly the same. However, with a 1:10 reverse split, you’re left with one share for every 10 you own, while the share price increases 10-fold and the total value of your holding remains intact. Companies often do reverse splits to prop up their stock prices and avoid being delisted due to an alarmingly low stock price.

iClick’s history contains other red flags, such as: B. A secondary offering of additional shares in 2020 that diluted the value of existing shares. Also, it’s a Chinese company; International equities face political and currency headwinds, among other risks, and are often subject to less regulatory requirements than US equities.

Who am I?

I trace my roots back to 1851 when my founder invested in the Bay State Glass Company in Massachusetts; He then moved to Brooklyn, NY. In 1868 he moved his entire glass company to his new home by barge on the Erie Canal system. I made the first glass bulbs for Thomas Edison’s electric lamps, the first low-loss fiber optics, and Gorilla Glass, the first damage-resistant cover glass for mobile devices. Today I am a leader in glass science, ceramic science and optical physics with a market value of nearly $30 billion. Another of my most famous products is Pyrex.

Can’t remember last week’s trivia question? Find it here.

Last week’s trivia answer: REI

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