Markets

ETFs to Watch as Microsoft Prepares to Report Today

Microsoft MSFT is set to release fiscal first-quarter 2021 results today after market close. Being the world's largest software maker, it is worth taking a look at the company’s fundamentals ahead of its results.

Over the past three months, the stock has gained 3.1%, underperforming the industry’s growth of 6.4%. After a solid run in late August, the stock got caught in a broad-market brutal trading in September. Thereafter, it’s trading has been range bound with some downward pressure lately. However, Microsoft could break this trend if the software leader beats estimates (see: all the Technology ETFs here).

Inside Our Methodology

Microsoft has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%. According to our surprise prediction methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The stock witnessed no earnings estimate revision for the fiscal first quarter over the past 30 days. The Zacks Consensus Estimate indicates substantial earnings growth of 10.9% and revenue growth of 7.9% from the year-ago quarter. Microsoft’s earnings track is impressive, with the last four-quarter positive earnings surprise being 10.21%, on average. The stock boasts a solid Growth Score of B and belongs to a top-ranked Zacks industry (top 25%).

Microsoft Corporation Price, Consensus and EPS Surprise

Microsoft Corporation Price, Consensus and EPS Surprise

Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote

The Zacks Consensus Estimate for average target price is $234.90 with nearly 91% of the analysts having a Strong Buy or a Buy rating ahead of earnings.

What’s New?

As the pandemic makes gaming a hot favorite, Microsoft jumped on this corner of the entertainment industry by announcing the biggest video game deal ever. The world's largest software maker plans to acquire ZeniMax Media Inc., owner of the storied video-game publisher Bethesda Softworks, for $7.5 billion in cash. The proposed deal will bolster Microsoft’s Xbox original games portfolio with a number of the industry’s highest-profile titles including Elder Scrolls, Doom, Fallout, Qyuake, Wolfenstein, Dishonored, Prey and Starfield. It will bring high profile publishers, including Bethesda Game Studios, id Software, ZeniMax Online Studios, Arkane, MachineGames, Tango Gameworks, Alpha Dog and Roundhouse Studios, under the Microsoft gaming roof (read: ETFs to Gain as Microsoft Bets Big on Video Gaming).

With these additions, Microsoft’s portfolio will expand from 15 to 23 creative studio teams. The deal, which is expected to close in the second half of 2021, will not likely to affect its non-GAAP earnings for this year or the next.

What to Watch?

Investors will continue to watch cloud-computing sales with the acceleration of digital transformation and demand for cloud services amid the ongoing coronavirus pandemic.

ETFs in Focus

Given this, ETFs having the highest allocation to this this tech giant will be in focus. These funds could be potential movers if Microsoft surprises the market.

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $34.6 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 11.5 million shares a day on average. It holds about 73 securities in its basket, with Microsoft occupying the second position at 20.4%. XLK has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Dow Jones US Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 157 U.S. electronics, computer software and hardware, and informational technology companies. Of these, Microsoft occupies the second position in the basket with 17.2% of the assets. The fund has AUM of $6.2 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 171,000 shares a day. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Top-Ranked Tech ETFs to Buy on Decade's Strongest PC Growth).

Vanguard Information Technology ETF VGT

This fund manages about $37.4 billion in its asset base and provides exposure to 330 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 16.5% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 831,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF FTEC

This fund is home to 331 technology stocks with AUM of $4.7 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 16.5% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 452,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: ETFs to Gain on Apple's New 5G iPhones, Analysts Optimism).

iShares Global Tech ETF IXN

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 122 stocks in its basket, Microsoft occupies the second spot with 16.3% share. The ETF has amassed $4.4 billion in its asset base but trades in a good volume of 84,000 shares a day on average. Expense ratio is 0.46%.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $91.6 million in its asset base. It employs data science techniques to provide exposure to 235 technology stocks. Microsoft is the top firm with 14.4% allocation. IETC trades in a light volume of 36,000 shares and charges 18 bps in annual fees.

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Microsoft Corporation (MSFT): Free Stock Analysis Report
 
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
 
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
 
iShares Global Tech ETF (IXN): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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