<p>On the surface, coronavirus from China apparently gives an upward story for Microsoft (NASDAQ: MSFT). As a “physical” software giant that became a top player in the Software-as-a-Service (SaaS) area, several of the company’s business units encourage digital transfers of work products, as opposed to face-to-face transfers. Combined with its strength in cloud processing, you can be forgiven for expecting Microsoft shares to be delayed.
Source: The Art of Pics / Shutterstock.com
To be fair, Microsoft looks much better than most names. Despite the bloodshed on March 3, Microsoft shares were almost 4% higher than today. By comparison, the cloud competitor Alphabet (NASDAQ: GOOG, NASDAQ: GOOGL) is just below par.
In addition, the Nasdaq Composite Index is down 3.9% for the year. Thus, stocks seem like a viable controversial option: it is down enough to be a discount, but not too far away to cause fear of a meltdown.
In the long run, I expect stocks to recover from the disease caused by coronavirus. My confidence rests on the idea that Microsoft shares are used for several relevant catalysts. For example, everyone knows that video games represent big business. According to data from Digital Market Outlook and Statista, revenues from video games in the US in 2024 will reach $ 17.2 billion.
In China, the figure is likely to rise to $ 25.3 billion. Therefore, with both Microsoft and rival Sony (NYSE: SNE) planning to release their respective next-generation consoles by the end of this year, growth opportunities will abound. It also means that it is a smart move to favor a discount on Microsoft shares.
But are you going to do it today? Here I am a little skeptical and explain why.
Before I go into that, I want to repeat that I am a long-term bullish on MSFT. If there is anyone who is emotionally attached to this company, you will not get much criticism for me.
At the same time, I am a realist. One of the things I like to do is look at the numbers. Right now, they are not painting a rosy picture regarding the coronavirus.
At the time of writing, there are 93,158 cases with 3,202 deaths worldwide. As you read this, this number will jump to the 100,000 mark. Of particular concern are the rapidly emerging cases in South Korea, Italy and Iran. These three countries went from having few or no reported cases to becoming the three most affected countries outside China.
As the New York Times reported, the coronavirus appears to be more contagious (and more deadly) than most influenza strains. Of course, everyday people adopted the worst and most panicky necessities, especially protective face masks (which you will not find anywhere else now).
Still, some insist that the “common” flu is the biggest threat. Where I think there is a link is that the flu – or some other disease – may go away before we collect official information about it. However, coronavirus has only been around for just over two months and it has already caused significant damage. This unknown is the reason why I hesitate to pull the trigger on Microsoft shares.
As I have mentioned before, it is not just the victims we have to worry about. Instead, it is the economic damage, especially the wider supply chain, that casts a dark cloud.
Waiting is the smart call
If you want to take a small position in the Microsoft stock as a “just in case” game, move on. However, I would encourage investors to keep the powder container dry.
I think it was very telling that the US Federal Reserve made an emergency rate cut on March 3 and “lowered the US reference rate by half a percentage point.” First, the Fed is not known for making drastic changes in monetary policy because some Americans have become ill. Second and more importantly, the large indices still printed large streaks of red ink.
It is a curious dynamic, because at the session a day earlier, markets jumped higher on speculation that central banks will financially support the global economy. Here is the largest central bank in the world that does exactly that, but Wall Street apparently did not care.
To me, this signals a loss of confidence. Furthermore, the environment does not favor growth names, especially those with multinational exposure. Like I said, I like Microsoft stock, but I also want to be smart about it.
Josh Enomoto, a former Sony Electronics Business Analyst, has helped broker large contracts with Fortune Global 500 companies. In recent years, he has delivered unique, critical insights for the investment markets, as well as for various other industries, including law, construction management and healthcare. At the time of writing, he was a long SNE stock.