Bear Market Better Buy: Meta Platforms vs. Microsoft

Microsoft (MSFT 1.16%) And Meta platforms (Meta 2.88%) All of them have seen their valuation drop in conjunction with the downtrends shaping the broader market. Even with the strong business performance, Microsoft’s share price is down nearly 33% from its high. Meanwhile, Meta Platforms is facing more pronounced operating headwinds and has seen a rapid contraction in valuation — the social media giant’s stock is down nearly 65% ​​from its peak level.

Which of these technology stocks stands out as a best buy at today’s prices? Read on to find out why two Motley Fool contributors disagree on which would be best to put your money behind.

Microsoft: The world’s largest software company will continue to grow

Keith Noonan: With the cloud- and subscription-based transformation initiated by CEO Satya Nadella, Microsoft has built an incredible foundation of recurring revenue. While the company isn’t completely immune from periods when macroeconomic headwinds form the backdrop for the broader industry, the software giant has a strong sales base and should remain one of the strongest companies overall in the technology sector.

Despite currency headwinds and other macro pressures, Microsoft managed to grow sales nearly 11% year-over-year to $50.1 billion in the first quarter of the current fiscal year, which ended in September 2022. The company’s smart cloud segment, which is made up to an extent Much of its Azure business, sales grew 20% year-over-year in the first quarter and accounted for nearly 40% of total revenue in the period.

Having its fastest-growing segment also the largest in terms of revenue bodes well for Microsoft.

Among the continuous expansion of Azure Cloud infrastructure business And strong, high-margin revenue growth for our subscription-based productivity software suite, Microsoft remains well positioned to continue to deliver strong results going forward.

With shares trading at nearly 24 times expected future earnings, Microsoft has a more growth-based valuation compared to the Meta platforms, but its near-term performance outlook looks less dire.

Microsoft also has appeal as a dividend growth stock. While its current dividend yield remains relatively small at about 1.1%, the company is raising its payout at a rapid clip and looks well positioned for continued dividend growth.

MSFT earnings chart.

MSFT dividend data by YCharts.

While I also think Meta Platforms stock offers an attractive risk-reward proposition at current prices, Microsoft’s core business looks stronger. I think both stocks present attractive long-term investment opportunities, but Microsoft stock is less risky while still offering great return potential.

Definition platforms: Market focus on headwinds

Barkiev Tatevosyan: Meta Platforms stock has suffered as part of an overall bear market, for sure. However, the social media giant faced several strong headwinds in 2022 not directly related to the bear market, including increased competition from TikTok, and negative changes to its privacy policy in 2022. an Apple, and a slowdown in marketing spending. Despite these many headwinds, Meta still managed to generate $84.4 billion in revenue in the first nine months of 2022 (Q4 numbers are yet to come in) and $22.5 billion in operating income, all while investing $25.6 billion in research and development.

Skeptics will say that operating income is down from $34 billion at the same time prior, and they’ll make a valid point. However, the The share price fell 66% from its recent highs and trading at the forward P/E ratio of 16. This cheap valuation suggests that the market has already priced in the headwinds affecting the Meta’s near-term outlook. Meanwhile, Meta has 2.93 billion daily active users across its suite of apps. That was an increase of 50 million over the previous quarter and 120 million over the prior year.

META PE ratio chart (forward).

META PE ratio (forward) data by YCharts.

Certainly, the near term may be pressurized for Meta platforms as they grapple with the aforementioned headwinds. But the company has proven that it can generate huge profits and is still adding millions of new users despite its large scale. For this reason, long-term investors can take advantage of Meta’s relatively cheap valuation Stock collection.

What stock is right for you?

While Microsoft’s overall business looks stronger at the moment, the big sell-off has also pushed Meta Platforms stock to a much lower growth-based valuation. If there is room for only one of these stocks in your portfolio, the best move is to weigh each company’s trading strengths against their valuation profile and decide which is the best fit for your investment goals.

But for investors seeking more exposure to the tech sector, there’s a lot to like about both Microsoft and Meta at today’s prices, and buying both stocks might be the right move.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, sits on The Motley Fool’s board of directors. Keith Noonan He has no position in any of the aforementioned shares. Barkiev Tatevosyan, CFA He holds positions at Apple. The Motley Fool has and recommends positions at Apple, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: March 2023 long calls of $120 on Apple and March 2023 short calls of $130 on Apple. The Motley Fool has a file Disclosure policy.

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