This year hasn’t been a great one for big tech stocks. Shares of Apple and Microsoft registered a huge decline. Apple stock fell nearly 20 percent and Microsoft stock fell nearly 27 percent. According to a fund manager, one of the two stocks is a favorite for the coming year.
“We clearly like Microsoft,” said Richard-Mark Dodds, CIO of wealth management firm Pure Value Metrics. He says his fund has had a positive return this year, even though most of the major markets have collapsed in bear markets. According to the Switzerland-based fund manager, Apple’s stock has relatively outperformed Microsoft as the company spent $90 billion on share buybacks in the last fiscal year, while Microsoft spent only $30 billion on buybacks.
Share buybacks have pushed Apple’s equity down to $51 billion from a peak of $134 billion in 2017 as the company continues to borrow to fund buybacks at a rate higher than its earnings. Meanwhile, Microsoft’s equity rose 47 percent to $166 billion during the same period. “You’re basically going to hit a balance sheet wall,” Dodd said, referring to the possibility that Apple won’t be able to borrow more to prop up its shares through buybacks.
On the other hand, Dodds highlighted the steps Microsoft is taking that make the company a better investment. The maker of the Windows operating system spent nearly $45 billion on investment in the last financial year to boost its business. At the same time, Apple spent $ 11 billion. Dodds said Microsoft’s 4 percent stake in the London Stock Exchange is evidence of the company’s long-term strategy to grow its cloud services.
Dodds said, “I think this is very smart because it has secured LSE as the cloud customer for the next 10 years at a time when there is a lot of competition in the cloud services space.” The CIO also believes that Microsoft will be better able to weather a slowdown in global growth because it is a more diversified company. Dodds, on the other hand, says that Apple relies on highly profitable revenue streams to sustain growth.
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