A gain of 35.7% in 2018 for shares of Microsoft Corporation (MSFT) tells a story of unusual bullish trading activity accompanying the move. In fact, Microsoft is a regular household name for Mapsignals, and I even suggested the stock as a buy opportunity in a post back in March. Since I wrote that article on March 27, 2018, Microsoft stock has gained roughly 30%. The signal that alerted me to Microsoft then is occurring now ... unusual trading activity.
It's not a shock that the cloud, SaaS, social media and gaming have been growing at a fast rate globally. These areas have a large footprint with Microsoft, but even with a terrific fundamental picture (I'll go over this later), the true tell on the near-term trajectory of the stock lies in its trading activity. At many points in 2018, Microsoft shares have increased in price alongside an increase in volume. This can be indicative of smart money accumulating shares. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.
For Mapsignals, the strongest indicator of positive price momentum is obtained by measuring potential institutional buying in the shares. In 2018, Microsoft has logged 20 of these rare signals (see chart). We like to see continual bullish activity in the shares alongside solid forward fundamentals, as this indicates that demand for the stock should increase over time. (See also: Microsoft's New AI-Backed Services Threaten Salesforce.)
In the chart below, Microsoft stock broke out to new 52-week highs recently. The shares have clearly been in demand and should continue higher over the long term:
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized, unusual institutional trading activity. By studying these data, points we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these factors for Microsoft are as follows:
Just to show you graphically what our unusual trading activity signal looks like, have a look at all of the UI signals Microsoft stock has made over the past year:
Now, we take it a step further and score the best stocks showing this activity. Below, you can see the historical times where Microsoft shares made buy signals for Mapsignals since 2013. These are the highest-rated signals in our stock universe (gray areas = backtest):
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Microsoft has solid revenue and EPS growth rates:
- Q4 year-over-year revenue growth rate: +17%
- Q4 year-over-year operating income growth rate: +35%
- Q4 commercial cloud revenue growth rate: +53%
Microsoft checks the box on strong technicals and fundamentals while showing bullish institutional momentum in 2018. We believe that the current level for the shares is in position for further upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
Microsoft stock represents a potential buying opportunity for the long-term investor. Given the solid revenue growth, earnings growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth-oriented portfolio.
To learn more about Mapsignals' institutional signals, please visit our "About Us" page.
Disclosure: The author holds a long position in Microsoft shares at the time of publication.