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TRADING NATION Microsoft is a buy into earnings even as it nears all-time high, two traders say

2nd Feb 2021 | Software

Analysts have gone mad for Microsoft.

Goldman Sachs, Evercore ISI and Morgan Stanley secured Microsoft’s place in Wall Street’s good graces last week, with Goldman initiating coverage of the stock as a buy, Evercore adding it to its tactical outperform list and Morgan Stanley calling it its top recovery pick.

Microsoft currently does not have a single sell rating from the major analyst firms, according to FactSet.

The technology giant’s run does appear to have significant runway, two traders said Friday as the stock neared all-time highs.

“Microsoft is honestly one of the most consistent stocks out there,” Danielle Shay, director of options at Simpler Trading, told CNBC’s “Trading Nation.”

“If you look at the growth year over year, they’re consistently beating earnings, they’re consistently showing even more continued growth via their guidance, and for me, that’s all the more reason to be long,” she said.

While Shay is long Microsoft’s stock, those who aren’t invested could get a chance to buy it after the company’s earnings report on Tuesday afternoon, she said.

“When a stock is right up near an all-time high going into an earnings report and everyone is so bullish, we do typically see a little bit of a pullback on that report that will probably be a great buying opportunity,” she said.

Microsoft’s technical setup does imply longer-term upside, said Craig Johnson, senior technical research analyst at Piper Sandler.

“You are making this really nice symmetrical triangle, and those kinds of symmetrical triangles are typically continuation patterns of prior moves,” he said in the same “Trading Nation” interview, citing a chart.

“I look at this and I could see the stock move up toward about 255,” Johnson said.

Microsoft shares closed at $225.95 on Friday. Futures trading on Monday implied a roughly $229 opening price.

“This has been a very consistent stock,” Johnson said, doubling down on Shay’s comments. “They’ve only missed four quarterly reports going all the way back to 2010. I suspect this is probably going to be another decent report for them. ... I like what I see. I’d still be a buyer of this stock. Even though it’s breaking out near the highs, again, I’d still be a buyer of this stock here on this breakout.”

One recent earnings report might forecast good things for Microsoft, Shay said.

“I would actually point towards Netflix,” she said. “Netflix had a 2x move, twice the expected market maker move, and it was really the breakout on Netflix that caused Microsoft and Amazon ... to start to break out higher. So, I would actually say that the move in Netflix was a little bit more critical.”

By: Lizzy Gurdus