Would you be willing to let a crowd of complete strangers pick a stock for your portfolio? There was a time when most people's answer would have been a resounding "no." Times and circumstances have changed, however. It's now clear that most investors actually do apply sound judgment when it comes to their serious investment dollars. They're wisely favoring blue chip stocks. In the meantime, stock-picking itself has become a public exercise.
Several online brokerages and market information platforms now regularly update the public with lists outlining the most widely held tickers from their trading platforms, helping other investors discover potential holdings. One of the better-known lists out there comes from Robinhood Markets (HOOD 4.44%) and it shows the top 100 equities held by the online brokerage's users at any given moment. High on that list right now is a very familiar name: Microsoft (MSFT 1.82%).
You may want to follow these investors' lead if you're looking to outperform the market over the long run. There are three big-picture attributes that make Microsoft a superior investment prospect, even if some of its shareholders don't even realize they're seeing them.
Demand for technology is perpetual
Technology is constantly changing (usually for the better). Semiconductors have gotten better even as they've gotten smaller and denser, for instance. Digital products have replaced analog ones. Wireless connectivity is displacing wired solutions, making products mobile that weren't before. Artificial intelligence (AI) is automatically handling tasks that once required human management.
What has not changed is the world's reliance on the technology sector's latest advancements. Indeed, if anything we've become more dependent on such solutions. We'll only grow that dependency in the future, too, as people's productivity improves when they delegate more of their mundane tasks to machines.
This paradigm plays right into the hand that Microsoft is holding. Cloud computing, office productivity software, and computer operating systems are all in its wheelhouse. Barring a complete societal collapse (in which case it won't matter what stocks you own), the need for such solutions is not likely to ever go away.
Microsoft is adaptable
Some companies are far more able to adapt to changes in the marketplace than others. Eastman Kodak, for example, was never going to be able to stave off the advent of digital cameras and the digital images those cameras produce. Conversely, most pharmaceutical companies manage well-established research and development arms to replenish their drug portfolios when patents expire and their older treatments face generic competition.
Microsoft is of this latter variety of organizations, readily able to create new solutions or repurpose old ones. For instance, the software that powers its Xbox game consoles is a retooled part of its Windows operating system called DirectX. Office productivity programs like Word and Excel started out as standalone software titles installed on individual personal computers. Now these tools are browser-based, accessible by subscribers anywhere. Indeed, cloud computing wasn't even a profit center for Microsoft until 2008, when the company unveiled its now-lauded Azure platform.
These were all relatively easy developments simply because computer coding typically isn't product-specific. It just requires knowing how to code to achieve a particular outcome.
Microsoft is already growing (reliably) a lot
Last but certainly not least, Robinhood's clients are likely fans of Microsoft's long-term prospects because of its track record of growth.
The graphic below says it all. While sales have not moved upward in a perfectly straight line, last quarter's revenue of $56.5 billion was three times more than it was generating quarterly just 10 years ago. Net income has grown even more as the company's operation has scaled up.
MSFT Revenue (Quarterly) data by YCharts.
Analysts expect Microsoft to maintain this growth pace well into the foreseeable future. They're calling for a top line of nearly $385 billion in 2028, up from this year's estimate of just under $228 billion. Earnings should grow just as well, if not better.
The key to this consistent progress is the way Microsoft is increasingly billing for its software and technology solutions. A great deal of it is bought on a subscription basis, with customers paying affordable monthly or annual fees for access to these tools that they often end up not being able to live without. Although the software giant doesn't divulge every detail about its recurring revenue, we do know that as of the end of last quarter, Microsoft was sitting on $212 billion worth of these contractual sales that's yet to be converted into actual revenue. Only a little less than half of that is expected to be booked within the next 12 months. The rest of it will be booked a year or more down the road. The company's going to add more of this recurring revenue between now and then, of course.
For perspective, that's about how much business Microsoft did during the entire fiscal year ending in June. Not too many other outfits have a full year's worth of sales already lined up this far out.
Robinhood's customers got this one right
Microsoft isn't the only highly popular name among Robinhood's customers at this time, nor it is the only ticker they like with a better-than-average chance of outperforming most other stocks.
It's one of the few names out there, however, that nearly all investors can absolutely agree is worth owning if you're looking to beat the broad market for the long haul. It's not very likely to be out of place in anybody's portfolio.
