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Microsoft Pops on Earnings Beat, Solid Outlook: ETFs to Buy

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After the closing bell on Thursday, the world's largest software maker Microsoft (MSFT - Free Report) once again delighted investors with stellar fiscal fourth-quarter 2018 results. It topped on both revenue and earnings estimates and issued better-than-expected guidance given that its push into cloud services is paying off (see: all the Technology ETFs here).

As such, shares of Microsoft jumped more than 4% in after-market hours to new highs following the earnings announcement. It is also up nearly 4% in pre-market trade today at the time of writing.

A Quick Look to Earnings

Earnings per share came in at $1.13, easily outpacing the Zacks Consensus Estimate of $1.07 and improving 7% from the year-ago earnings. Revenues rose 17% year over year to $30.1 billion, topping the estimate of $29.2 billion. This brings full-year revenues to more than $100 billion for the fiscal 2018 for the first time (read: Microsoft Shares Touch Triple Digits: 5 Tech ETFs to Bet On).

The outperformance was credited to the strength in the cloud business, particularly Azure, sales of which grew 89% from the year-ago period. Per research firm Canalys, Azure has been growing rapidly in the cloud computing market and holds the second position with 16% of the market, trailing Amazon’s (AMZN - Free Report) Amazon Web Services.

Since Satya Nadella has taken over, the fortunes of the company have strongly turned around to make it a true player in cloud computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has become a major source of growth. Particularly, sales of Office 365 and Dynamic 365 climbed 38% and 61%, respectively.

Based on cloud business growth, Microsoft provided upbeat revenue guidance of $27.35-$28.05 billion for the first quarter fiscal 2019. This is much higher than the Zacks Consensus Estimate of $27.32 billion.

Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a VGM Score of B. It falls under a top-ranked Zacks industry (top 29%), suggesting that it has room for further upside (read: 5 Dirt-Cheap Tech ETFs for Further Gains).

ETFs in Focus

Investors seeking to bet on the strength in this software leader could definitely look into the ETF world. While there are several ETF options available, we have highlighted five with a double-digit exposure to Microsoft that could be compelling choices.

iShares Dow Jones US Technology ETF (IYW - Free Report)

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 136 technology stocks. Out of these, Microsoft occupies the second position in the basket with 14% of assets. The fund has AUM of $4.3 billion and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 243,000 shares in hand a day. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares Evolved U.S. Technology ETF (IETC - Free Report)

This is an active ETF and debuted in the space in late March, having accumulated $5.4 million in its asset base so far. It employs data science techniques to provide exposure to 216 technology stocks. Microsoft takes the top spot at 12.7% share. IETC currently trades in a light volume of 2,000 shares and charges 18 bps in annual fees (read: A Spread of ETFs to Tap the Dip in FANGs).

Select Sector SPDR Technology ETF (XLK - Free Report)

This most-popular technology ETF follows the Technology Select Sector Index and has $22.7 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 14.7 million shares a day on average. It holds about 75 securities in its basket, with Microsoft occupying the second position at 12%. It has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Information Technology ETF (VGT - Free Report)

This fund manages about $21.8 billion in its asset base and provides exposure to 358 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Transition Index. Here, MSFT takes the second spot with 11.8% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 636,000 shares. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Top-Ranked Tech ETFs to Buy on Strong PC Growth).

MSCI Information Technology Index ETF (FTEC - Free Report)

This fund is home to 345 technology stocks with AUM of $2.2 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 10.5% allocation. The ETF has 0.08% in expense ratio while volume is solid at 491,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

See: Here's Why This FAANG Powered ETF Can Keep Outperforming

 


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