When the stock market falls to the extent that it has been for almost a year, it tends to cause a flight to quality. This means that investors, burned by speculative growth stocks and other high-flying companies, are retreating to the tried and true: companies that are stable, established and attractively valued based on earnings expectations.
However, many of these quality companies have prohibitively high stock prices, given their long history of earnings growth. For some investors, it may not even be feasible to buy a single share. One of those top-tier names is the tech giant Microsoft (MSFT -0.85%), the third largest company in the world with a market capitalization of approximately 2 trillion dollars. However, there is an easy way to invest in Microsoft for the cost of a penny stock.
An annual return of 24% in the last 10 years
Microsoft has been one of the best performing stocks since it went public in 1986 at $21 per share. Since then, it has posted an average annualized return of 24%, and that includes multiple stock splits, most recently in 2003. It has been remarkably consistent, as its average annualized return over the past 10 years as of August 29 is also 24%. . It is currently trading at $268 per share, down 20% from the year to date (YTD).
MSFT data by YCharts
For such a gigantic company, that kind of growth isn’t easy to achieve over such a long period, but Microsoft has been able to adapt over the years. Its intelligent cloud business has been the engine of growth in recent years. In the most recent earnings report, Microsoft had overall revenue growth of 12% year over year (YOY) and a 2% increase in net income. But most of the revenue growth was in the cloud computing business, with revenue up 28% year over year.
More specifically, the intelligent cloud segment saw revenue growth of 20% year over year and is expected to see even higher growth (25% to 27% year over year) in the first fiscal quarter of 2023, as my colleague recently pointed out. Keithen Drury. And its Azure cloud computing segment saw a 40% increase in revenue in the most recent quarter, growing faster than the similar businesses of its two main competitors, Amazon (AMZN -0.82%) Y Alphabet (GOOG -0.39%) (GOOGLE -0.44%). As Microsoft continues to gain market share in this space, it should remain a long-term force, particularly as we emerge from this period of market and economic uncertainty.
Stock “slices” provide greater access
The $268 price tag may be a bit steep for some investors who want to gain access to Microsoft, but there are less expensive options. You could invest in a large-cap or technology-focused exchange-traded fund, or ETF, that would include Microsoft as one of its largest holdings, since most are market-cap weighted.
Or you could invest in fractional shares of stock, which some brokerages also call “chunks” of stock. Fractional shares, offered by most brokers, allow you to invest by dollar amount rather than per share. So if you had $100 to invest, you could invest it in the fraction of shares that amount represents. In Microsoft’s case, $100 would buy about 37% of a single share. But that $100 would grow at the same rate as a full share, so if the stock gains 24% over the next year, a growth rate it has achieved over the last 10 years, you would earn 24% on that $100. If you contributed $50 a month, you’d soon have a cut and then some.
That said, don’t assume that Microsoft can continue to earn 24% a year in the future. Future returns could be more or less than that, depending on how your business performs and what investors think of the stock.
Investing in fractional shares is a great way to buy quality companies, particularly those that some investors may have considered too expensive, without paying for a full share.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Dave Kovaleski has no position in any of the listed stocks. The Motley Fool holds positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. The Motley Fool has a disclosure policy.
