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3 Mutual Funds to Ride on Microsoft's Strong Q4 Earnings

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Microsoft Corporation has surpassed analyst expectations with its fiscal fourth-quarter earnings. The company was largely boosted by strong customer demand for hybrid cloud services, a growing user base of its numerous applications and improvement in its gaming segment.

In fact, the software giant is expected to register impressive sales and operating profit in the new fiscal year. All these make Microsoft an attractive investment option. Let us thus take a look at the funds that have significant holdings in this company.

Upbeat Earnings and Revenues

Strong growth in Azure and LinkedIn were the catalysts behind the software giant’s impressive earnings per share and revenue growth for the quarter ended June 2019.

Microsoft, which belongs to the Zacks Computer - Software industry, reported earnings of $1.37 per share for its fiscal fourth quarter, which surpassed the Zacks Consensus Estimate of $1.21. The company’s EPS has increased more than 21% from the year-ago quarter (a 24% surge in constant currency).

In addition, revenues increased 12% from the same period last year (up 14% in constant currency). Microsoft reported revenues of $33.72 billion, which also beat the Zacks Consensus Estimate of $32.73 billion.

What’s more, Microsoft’s shares have added 37.1% on a year-to-date basis, clearly beating the broader S&P 500’s rise of 19.9%.

Further Growth Expected

Growing user base for Microsoft’s commercial business, which includes its products and cloud services, considerably boosted its revenues during the reported quarter.

The company’s robust development of Azure has helped the cloud computing segment register as much as 64% year-over-year (a 68% rise in constant currency) growth. The software giant has also added several new features to Azure such as Edge AI and IoT, in order to advance the segment and meet its growing consumer demand.

Azure’s integration into Microsoft’s gaming division has also opened up several opportunities. It has not only enhanced content but also improved gaming strategies.

Developers can now access Azure and game development tools such as Xbox Live, Visual Studio and DirectX among others, with Microsoft’s Game Stack. In fact, this increased horizon has made the company hopeful that Azure could soon become the most-preferred cloud platform for developers.

The company also stepped into various business deals with the likes of AT&T and Sony, which could boost its growth further. (Read more)

Our Choices

We have selected three mutual funds that you could consider adding to your portfolio. Microsoft is among the top holdings for these funds, all of which carry a Zacks Mutual Fund Rank #2 (Buy). Moreover, these funds have provided encouraging returns on a year-to-date basis. Additionally, the minimum initial investment is within $5000.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) fund aims for capital growth. The fund invests the majority of its assets in securities of companies that are engaged in activities related to software or information technology, or provide services in the same. The non-diversified fund invests in U.S. and non-U.S. issuers alike. When choosing the companies for investments, FSCSX focuses on industrial position, financial condition etc among other factors.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSCSX has returned 25.9% on a year-to-date basis. The fundhas an annual expense ratio of 0.72%, which is below the category average of 1.29%. FSCSX has no minimum initial investment. The fund has 24.87% asset allocation in Microsoft Corp.

Red Oak Technology Select Fund (ROGSX - Free Report) aims for appreciation of capital over a long period. The fund invests the majority of its assets in companies engaged in the technology sector. ROGSX mostly invests in common stocks of American companies. The fund may also invest in equity real estate investment trusts, common stocks of non-U.S. companies and American Depositary Receipts, which satisfy the fund’s investment objective.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

ROGSX has returned 21% on a year-to-date basis. The fundhas an annual expense ratio of 0.94%, which is below the category average of 1.29%. ROGSX has a minimum initial investment of $2000. The fund has 5.97% asset allocation in Microsoft Corp.

American Funds American Balanced Fund Class A (ABALX - Free Report) aims for capital preservation, current income, and appreciation of capital and income over the long term. The fund invests in a wide range of securities which comprise common stocks and investment-grade bonds. Most common stocks in which the fund invests have a history of providing dividends. ABALX may also invest in securities issued by the government of United States or a federal agency. The fund may invest in securities issued by non-U.S. companies as well.

This Zacks sector – Allocation Balanced product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

ABALX has returned 10.9% on a year-to-date basis. The fundhas an annual expense ratio of 0.57%, which is below the category average of 0.81%. ABALX has a minimum initial investment of $250. The fund has 4.45% asset allocation in Microsoft Corp.

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