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It's the 4th of July Money Morning Edition and we're celebrating US independence!

by , 04 July 2019
It's the 4th of July Money Morning Edition and we're celebrating US independence!
The US markets are closed today for the 4th of July public holiday. And, to celebrate our American friends' Independence Day, I thought it would be an excellent time to look at one of the most successful companies to come out of their capitalist democracy: Microsoft.
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The word “Microsoft” conjures up so many images.
You may think of Bill Gates and the fortune his shares created, or you might think of products like Word, Excel and Power Point. Or, if you’re like me, you might still remember the old blinking MS-DOS cursor on a monochrome box screen.
But the truth is, this behemoth has morphed and changed over the years and is currently a member of an elite group of companies which trade on a market capitalisation of more than $1 trillion. (Other members of this exclusive group include Apple and Amazon.)
Yet, with Microsoft dominating the global software market, you might be tempted to think there would be limited room for further growth. But you’d be very wrong.
Let’s take a look at what this company has been up to in 2019…
What is Microsoft doing these days?
While you might know Microsoft for its development of Windows 10 as well as its widely-used office software suite, Microsoft Office, what you may not know is it’s also a major player in the cloud sector with Microsoft Azure.
Microsoft is also prevalent in the video gaming space and has growing influence in the, now more than $100 billion, gaming sector through its Xbox gaming console.
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So, is Microsoft a buy at current levels?
Microsoft is what some people would refer to as “anti-fragile”. 
In other words, it is largely unaffected by market downturns. It’s the type of company that actually benefits in times of trouble. In a market downturn, anti-fragile companies can buy back shares, acquire smaller rivals, or even bleed competitors dry by undercutting them on price.
As a monster in the technology space, Microsoft is well-placed to do all of the above. 
It has $131 billion cash on hand and only around $72 billion in debt. There is almost no concern the company will struggle during another economic downturn. It will likely be able to weather any storm given the strength of its balance sheet.
In addition, its Office Suite is still the mostly widely used business software globally after two decades on top. The high cost of moving away from Microsoft Office, will likely keep clients coming back for the foreseeable future. 
This is important to note: Microsoft’s client base has staying power.
Not only is the new Software-as-a-Service billing model keeping the coffers full but, as it continues to add clients to the Azure cloud business, it will also benefit from further economies of scale. It’s difficult to see how others will compete with a company that can continuously lower prices and deliver a better, more competitive product by the day. 
It can’t all be rainbows and unicorns, right?
Granted, even though I would consider this a US blue-chip share (a widows and orphans type investment proposition) this is still a share pick and there are some risks to investing in a company. 
Microsoft might have a near monopoly when it comes to operating systems for personal computers, but this could change in future. As computing becomes increasingly mobile, there are signs Microsoft is struggling to keep up.
Its Windows Mobile offering has never been received well by consumers and it continues to play second fiddle to Alphabet’s Android and Apple’s iOS. 
Even in the PC market, Windows will have to continue being innovative if it wants to retain its dominance. Alphabet is already chewing away at the PC market with its Chromebooks. They don’t run Windows but rather Google’s Chrome OS. 
And, there is always the possibility more people will begin adopting free operating systems like Linux instead of Windows as the global population becomes more tech savvy.
 As the South African born, tech billionaire and all-around genius Elon Musk said recently, when looking at bleeding edge technology companies, there are no “moats”. 
The idea of a business building an unassailable defence is “ridiculous” and “quaint”. 
He says: “If your only defence against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness.”
And yet, in spite of the risks, I would say Microsoft is a proven innovator and a terrible foe to compete against. 
So, for my money, instead of trying to beat them, I’m going to join them, by investing in Microsoft shares and reaping the rewards of a world-class, blue-chip business. 
If you’re like me and interested in making an investment in Microsoft, you will need to buy these shares in the US market. 
The easiest way for South Africans to buy global equities is through a specialist local/offshore broker. Rand Swiss is a trusted link between South African residents and global markets. 
If you’re interested in taking advantage of the special rates Fleet Street Publications has negotiated with this firm on behalf of Money Morning subscribers, send an email to support@randswiss.com asking about transferring your funds offshore. 
Make sure you mention you read about it here and you’ll qualify for a discounted transfer rate.
Christo Krog,
Rand Swiss, Wealth Manager
P.S. Gold shares are on a great run thanks to the gold price rally. And as long as this continues these gold stocks will soar. You can get full details on these stocks in Francois Joubert’s Gold Playbook for 2019.

It's the 4th of July Money Morning Edition and we're celebrating US independence!
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