An Attractive Entry Level for Microsoft Stock?


Dec. 31 2019, Updated 12:41 p.m. ET

Microsoft stock (MSFT) stock was trading at $157.86 on December 30, down 0.69% from the previous trading session. Meanwhile, the S&P 500 (SPY) decreased to $3,221.22, representing a daily loss of 0.58% at the moment of this writing. Microsoft’s stock performance also lagged behind the Dow Jones Industrial Average‘s daily decrease of 0.60%. Meanwhile, the tech-heavy Nasdaq index inched down 0.67%. 

What’s more, Bank of America boosted its MSFT price target to $200 from $162, based on optimism regarding the company’s cloud business, gaming, and LinkedIn. Following this news, the stock faced a few optimistic bets from on the options market during Monday’s trading session.

So it’s a good time to take a closer look at Microsoft’s recent price target revision, institutional transactions over the past quarter, and recent trades from options traders. Let’s see if the stock will face any upside going forward.

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MSFT stock gets a price target boost from Bank of America

Bank of America named Microsoft stock “as a top software pick for 2020,” boosting price target to $200 from $162. BAC also named a few key growth drivers for the stock, which included Azure, gaming, and LinkedIn.

Considering MSFT’s cloud business, BAC said it “has still not reached scale in terms of margins,” which generally means that it could improve the company’s gross margin long-term. Moreover, the bank expects Microsoft’s revenue to increase more than 10% on an annual basis.

Wedbush analyst Daniel Ives also named Microsoft for 2020 as a winner of the next stage of the cloud war versus Amazon’s (AMZN) AWS

Analyst coverage and target prices for MSFT

On the whole, Wall Street analysts have upgraded Microsoft stock many times over the last six months. The consensus price target stands at $162.11, which represents a 2.68% upside. You can refer to MarketBeat for a detailed breakdown. And according to TipRanks, MSFT is a “strong buy” with an average price target of $163.32, representing 3.41% upside. Moreover, all 27 analysts covering MSFT recommend it as a “buy.”

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Options traders are actively betting on Microsoft stock rising

The open interest levels for MSFT’s January 3 $160.00 calls saw bullish buying early Monday. According to Barchart.com, the open contracts surged by about 2,754 contracts to 8,715. So Microsoft stock is a moderate bet since the transaction represents a total dollar value of about $247,000. A buyer of the calls would need MSFT’s equity to rise to $160.28 by the expiration date in order to break even. That level would be a gain of about 1.5% from MSFT’s current price. 

Also, the open interest levels for the March 20 $170.00 calls surged during yesterday’s session as well. Again according to Barchart.com, the open contracts rose by about 1,881 contracts to 10,717. These contracts traded at about $1.57 per contract. So the open interest in MSFT represents a total dollar value of about $1.7 million. For a buyer of these calls, the equity would need to rise to $171.6 by the expiration date. And that rise would represent a gain of about 9% from MSFT’s current price.

What “smart money” does with Microsoft stock

Institutional ownership in Microsoft is approximately 71.78% of diluted shares. And most of these shares are in the hands of The Vanguard Group, which owns around 607,3 million shares or 7.96%. Next are BlackRock Fund Advisors, SSgA Funds Management, and Fidelity Management & Research Company at about 4.49%, 4.11%, and 2.99%, respectively. The rest of the owners hold relatively small stakes.

According to CNN Business, only about 601,000 shares were bought by institutional investors, and about 1.7 million shares sold over the past three months. This difference may scare some investors. But I suggest that massive institutions were selling Microsoft stock due to covering long positions.  

If you’re interested in more technical analysis, please see Can Nvidia Investors Expect More Upside in the Stock?, Could Intel Stock Reach New Highs?, and Why AMD Stock Could Outperform.


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