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Stay-At-Home Fuels Microsoft Q3 Earnings: ETFs to Buy
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After the closing bell on Wednesday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with blow-out fiscal third-quarter 2020 results. It continued its long track of beating earnings estimate and topped the revenue estimate, citing that the COVID-19 pandemic had a minimal impact on its results (see: all the Technology ETFs here).
Earnings per share came in at $1.40, outpacing the Zacks Consensus Estimate by 13 cents and improving 23% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since fiscal Q3 2016. Revenues rose 15% year over year to $35 billion, topping the consensus estimate of $33.8 billion.
The company’s shift toward Internet-based computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform, is paying off. Azure sales grew 59% in the fiscal third quarter while sales of Office 365 Commercial and Dynamic 365 climbed 25% and 47%, respectively.
The lockdown to contain the COVID-19 spread has led to increased demand for its Teams chat and online meeting app, and Xbox gaming services as people across the world have shifted to work and entertainment from home. The Teams collaboration software now has 75 million users while Xbox Live gaming service saw an all-time-high engagement with 19 million active users (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).
Following the earnings announcement, shares of Microsoft climbed as much as 5% in after-market hours. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a Growth Score of B. It falls under a top-ranked Zacks industry (top 19%), which suggests its outperformance in the days ahead.
ETFs in Focus
Investors seeking to bet on this software leader could definitely tap ETFs. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.
This most-popular technology ETF follows the Technology Select Sector Index and has $26 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 15.6 million shares a day on average. It holds about 71 securities in its basket, with Microsoft occupying the top position at 21.6%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 154 technology stocks. Of these, Microsoft occupies the top position in the basket with 19.3% of the assets. The fund has AUM of $4.7 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 163,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.
This fund manages about $25.5 billion in its asset base and provides exposure to 319 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the top position with 18.5% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 956,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: "Cash is King:" Buy These Tech ETFs to Beat Coronavirus).
This fund is home to 314 technology stocks with AUM of $3.3 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 18.1% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 549,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
This is an active ETF, having accumulated $35.3 million in its asset base. It employs data science techniques to provide exposure to 234 technology stocks. Microsoft is the top firm with 17.2% allocation. IETC trades in a light volume of 22,000 shares and charges 18 bps in annual fees.
This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 119 stocks in its basket, Microsoft occupies the top spot with 17.4% share. The ETF has amassed $3.1 billion in its asset base and trades in a good volume of 117,000 shares a day on average. Expense ratio came in at 0.46%.
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Stay-At-Home Fuels Microsoft Q3 Earnings: ETFs to Buy
After the closing bell on Wednesday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with blow-out fiscal third-quarter 2020 results. It continued its long track of beating earnings estimate and topped the revenue estimate, citing that the COVID-19 pandemic had a minimal impact on its results (see: all the Technology ETFs here).
Earnings per share came in at $1.40, outpacing the Zacks Consensus Estimate by 13 cents and improving 23% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since fiscal Q3 2016. Revenues rose 15% year over year to $35 billion, topping the consensus estimate of $33.8 billion.
The company’s shift toward Internet-based computing business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform, is paying off. Azure sales grew 59% in the fiscal third quarter while sales of Office 365 Commercial and Dynamic 365 climbed 25% and 47%, respectively.
The lockdown to contain the COVID-19 spread has led to increased demand for its Teams chat and online meeting app, and Xbox gaming services as people across the world have shifted to work and entertainment from home. The Teams collaboration software now has 75 million users while Xbox Live gaming service saw an all-time-high engagement with 19 million active users (read: Hot ETFs to Tap Consumers' Digital Shift Amid Coronavirus).
Following the earnings announcement, shares of Microsoft climbed as much as 5% in after-market hours. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a Growth Score of B. It falls under a top-ranked Zacks industry (top 19%), which suggests its outperformance in the days ahead.
ETFs in Focus
Investors seeking to bet on this software leader could definitely tap ETFs. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.
Select Sector SPDR Technology ETF (XLK - Free Report)
This most-popular technology ETF follows the Technology Select Sector Index and has $26 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 15.6 million shares a day on average. It holds about 71 securities in its basket, with Microsoft occupying the top position at 21.6%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.
iShares U.S. Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 154 technology stocks. Of these, Microsoft occupies the top position in the basket with 19.3% of the assets. The fund has AUM of $4.7 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 163,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages about $25.5 billion in its asset base and provides exposure to 319 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the top position with 18.5% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 956,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: "Cash is King:" Buy These Tech ETFs to Beat Coronavirus).
MSCI Information Technology Index ETF (FTEC - Free Report)
This fund is home to 314 technology stocks with AUM of $3.3 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 18.1% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 549,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.
iShares Evolved U.S. Technology ETF (IETC - Free Report)
This is an active ETF, having accumulated $35.3 million in its asset base. It employs data science techniques to provide exposure to 234 technology stocks. Microsoft is the top firm with 17.2% allocation. IETC trades in a light volume of 22,000 shares and charges 18 bps in annual fees.
iShares Global Tech ETF (IXN - Free Report)
This product provides exposure to electronics, computer software and hardware, and informational technology companies by tracking the S&P Global 1200 Information Technology Sector Index. Holding 119 stocks in its basket, Microsoft occupies the top spot with 17.4% share. The ETF has amassed $3.1 billion in its asset base and trades in a good volume of 117,000 shares a day on average. Expense ratio came in at 0.46%.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>