It has not been a good year for big tech stocks. Apple and Microsoft shares posted significant losses. Apple shares fell by about 20 percent and Microsoft shares fell by about 27 percent. According to a fund manager, one of the two stocks is a favorite for next year.
“We clearly prefer 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 fallen into bear markets. According to the Swiss-based fund manager, Apple shares have relatively outperformed Microsoft shares because the company spent $90 billion on share buybacks in the last fiscal year, while Microsoft only spent $30 billion on buybacks.
Share buybacks have pushed Apple’s equity to $51 billion from a peak of $134 billion in 2017 as the company continues to borrow to fund buybacks at a rate that exceeds its earnings. Meanwhile, Microsoft’s equity rose 47 percent to $166 billion over the same period. “It’s going to basically hit the balance sheet wall,” Dodd said, referring to the possibility that Apple wouldn’t be able to borrow more to prop up its stock through buybacks.
On the other hand, Dodds highlighted the steps Microsoft is taking to make the company a better investment. The Windows manufacturer spent about $45 billion in investments last fiscal year to boost its business. On the other hand, 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.
“I think it’s very smart because it just got LSE as a cloud customer for the next 10 years while there’s a lot of competition in the cloud services business right now,” said Dodds. The CIO also believes that Microsoft will be better able to weather the slowdown in global growth because it is a more diversified company. On the other hand, Dodds says Apple relies on a few very profitable revenue streams to sustain growth.
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