Technology has been at the center of this year’s market action… and we’re not talking about just AI.
Tech is a constant driver of innovation, and anyone who’s invested in streaming or EVs over the past decade knows just how much it pays to pay attention to the sector.
That’s why we’re talking tech in today’s Buy This, Not That… starting with my favorite stock, the company that has it all…
Microsoft.
And while it’s always a BUY for me… we also need to look at a few of its competitors, especially one that’s been left for dead.
The stock has gone nowhere, yet the company has $6 billion in cash and just $55 million in debt. Is that enough to make it a BUY for me?
Plus, I look at three more Microsoft competitors. See which ones are BUYS…. and which ones are NOT.
It’s all in my latest Buy This, Not That video.
Click on the image below to watch it.
TRANSCRIPT
Hey, everybody, Shah Gilani coming to you with your weekly BTNT, as in Buy This, Not That. Gonna talk a little bit tech today.
First up, because it’s always first in my book, is Microsoft (MSFT). And the reason I’m picking Microsoft, first of all, is because we’re gonna compare some other companies to Microsoft.
I know that’s impossible, but I’m gonna try. But why Microsoft? Because A, it’s my favorite stock, period. B, Microsoft’s got everything.
That’s why it’s my favorite stock. I’m gonna look at what Microsoft does, you look at its hardware. I’m working on a service machine now. I have a couple Surface computers.
I love the fact that they pull apart, they got a beautiful tablet for the airline. You can watch movies. It’s just a great product. Their hardware I think is great.
Software, they got everything. Look, I like Windows operating system, I always have. I have an Apple machine also, I love that too. But I like Windows, ’cause I’m maybe used to it.
But besides Windows operating system, which I think is rather intuitive, I love the suite of Office products, love that. We use everything from Excel to Outlook and everything in between. And a lot of people use it too. So certainly, tremendous business.
But they also have gaming. They’ve got Xbox, they’ve got Activision Blizzard now. So hit it out of the park there. They obviously have the Azure Cloud, monster business there.
They are big now in AI. And by the way, all the AI, the investment that they put into ChatGPT, into OpenAI is gonna pay off in spades. We don’t know whether or not Sam Altman is gonna stay at Microsoft. He was kicked out of ChatGPT, OpenAI.
OpenAI is a not-for-profit that owns ChatGPT. Guess what? ChatGPT is all about making money.
So the board got a little bit out of kilter with what the expectations were for Sam. And he was trying to commercialize everything and make them money on the for-profit side. They didn’t like that, booted him out. Satya Nadella said, come on over here to Microsoft.
Now who knows, maybe Sam’s gonna go back to OpenAI. Don’t know, but nonetheless, Microsoft’s big into OpenAI. Put a big chunk of money in there and they’re incorporating it in all their Office Suite of products. So AI all throughout the Cloud, all throughout Office products.
So Microsoft really leading the way there. And what else have they got? They’re starting to make chips. They wanna make their own chips, people.
So Microsoft, it’s a buy here, you know it’s making new highs, who cares? It’s gonna continue to make new highs. So Microsoft is the bomb.
Next up, I’m gonna come to one of its competitors.
Some people think it is, some people say absolutely not. Zoom (ZM). It’s a buy, people. I like it because it’s done absolutely nothing. It’s been left for dead.
That’s not the reason I like it, really. I like it because I think it can go higher. Why, they make money. Zoom, I’m on Zoom right now.
So yeah, I have all the Office Suite products, I got Teams, I got Meetings, I got everything else there. But I still use Zoom. So do a lot of people, a lot of people use Zoom. They’re making money, it’s a profitable company, period.
Look, I’m gonna give you come some basic numbers. EBITDA, $345 million, nothing to sneeze at. $6.5 billion in cash. Debt, $55.7 million. That’s it, so hand over fist generating cash. Great cash flow, great levered-free cash flow. This tiny, tiny debt for a company with the market cap of over $19 billion.
6.38% short of float, so you’re gonna see pops now and then, but I like it long term. I don’t know that it would be an acquisition, but with that kind of cash and that little amount of debt and it’s operating cash flow being what it is, it might fit in for somebody somewhere. Not saying that’s the reason to buy it, I just think it’s got room to move higher, maybe a lot higher.
Again, left for dead, I like it. Trades around $65 bucks and change. If you wanna put a tight stop on there, knock yourself out.
Next up, Electronic Arts (EA).
Does it really compete with Microsoft’s Xbox and Activision Blizzard now? Yeah it does. But is it a healthy competitor? The stock has gone nowhere for three years, a lot of volatility.
So Electronic Arts, gaming console, games, and all the stuff that fulfills the services for game consoles. Just tons of cool stuff. Yeah, I get it. But as far as the stock goes, it’s trading at $136.
Now this stock’s trades in range from $115 to about $142. So I don’t think it’s a buy, I just don’t think it’s going anywhere. I think if you want to trade it, you try and buy it around $115, you sell for $142. Maybe you sell it $142, you try and back buy it back at $115.
It’s a reversion to the mean kind of stock for me. It’s just, I don’t see it breaking out and it hasn’t done it in a long time. But if you like it, then you know, throw some money down on it at $115, if it gets back down there and see where it goes from there. But I certainly wouldn’t buy it up here at $136 and change.
Next up is DigitalOcean Holdings (DOCN). They are a cloud computing company. They really cater to startups, to small and medium-sized companies. I like what they do.
They’re not profitable but slightly negative profit margin. I think they’re gonna get to profitability. I think they got to add some profits this quarter. I think next year’s gonna be a lot better for them.
I say it’s a buy. So DOCN, trading around $28 and change. You’re better off maybe trying to see if it can come back down. ‘Cause their earnings were really good, just came out and the stock popped, it’s up about 47% off of its earnings.
It was getting beaten up a little bit and all of a sudden, earnings surprised everybody, stock popped up and I think it can come back down. Trading around $28 and change. Now I think it can come back down to $20. Fill a gap that had created when it popped on the earnings.
Again, I think it’s a good speculative play. I think over time, they’re gonna make money and I think you can buy down the $20s if you wanna put a tight stop on it. If you get down in $20s, maybe put a tight stop on it, maybe 10%, 15% and if it doesn’t work out, it doesn’t work out. But if you buy it down there, I think it’s probably a pretty good buy.
So that’s DigitalOcean Holdings, DOCN.
And last but not least, I’m gonna go to Arm. Alright, Arm Holdings (ARM), you know they IPO’d September 14 at $51, went up to $69. And I told my subscribers, we wanna own Arm.
So you wanna own Arm too. Right now it’s trading at $56 and change. So open up at $50, the IPO price is $51, shot off to $69. I said to my subscribers, no, let’s absolutely not chase this thing.
Gonna come back down and test its IPO levels. We bought a chunk a month later at $50. All right, so again it’s about $58 and change now. I think you can buy here down to maybe $50 if it comes back down.
But longer term, Arm is a hold., They’ve got a great royalty deal. They’re also in collaboration with Microsoft. Hmm, surprise.
You know the Cobalt 100 CPU chips that people are talking about that Microsoft is putting out, that’s in collaboration with Arm, people. So I like Arm, I like what they do, and because they’ve been restructured and brought to market it pretty cleanly of sitting on cash for $2.21 billion and debt of only 200 and we’ll call it 15 million. So not so bad there.
So I like Arm, I think it’s buy here. I think you might be able to get a little bit lower there if the market’s come in a little bit, gotten maybe a little bit ahead of themselves. But I think we can see a a year-end rally. I hope so ’cause we’re positioning for some popping to the year end.
We’ve already seen a really nice move. Hope it’s not exhausted because I think and I hope we can see a little more. And speaking of good things, tech, people. I just want you to everybody, you gotta keep an eye on tech because tech is the bomb.
Technology has been at the center of this year’s market action, 100%. And we’re not just talking about AI. Tech’s a constant driver of innovation, and anyone who’s invested in anything from streaming to over the past decade knows just how much it pays to pay attention to the sector.
Hey, happy Thanksgiving everybody, catch you next week, cheers.
— Shah Gilani
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Source: Total Wealth Research