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Stocks, broadly speaking, were hit in 2022. This time, only two S&P 500 Sectors in the green business year to date: energy and utilities. But because of the ongoing shift away from fossil fuels, big gains are unsustainable for many energy sector players, and utility stocks are considered a hedge – often not delivering the high growth returns many investors seek. .
Those kinds of gains can often be found in the tech sector, but only a handful of companies in the group can be considered safe during such times — among them Microsoft (MSFT -1.27%) And Apple (Apl -1.51%). They may not be immune to stock market turbulence, but they have time-tested business models with decades worth of success under their belts. That means when the economy picks up, these companies will likely be among the first to reach new heights. Not only can they help investors weather the current volatility, these two stocks look like solid long-term bets for any portfolio.
1. Microsoft serves both consumers and businesses
Most people know Microsoft for its Windows operating system for computers and its Office 365 digital document suite. After all, billions of people around the world use those products in personal and business settings. But the company has soared from its roots and into places its early backers never imagined, amassing a $1.7 trillion market cap.
Having multiple sources of income during an economic downturn is extremely important for a company. Consumers are currently tightening their belts on reasonable spending due to high inflation and rising interest rates, so Microsoft is targeting hardware like Surface laptops and Xbox game consoles. But the intelligent cloud segment is picking up the slack, and now accounts for the largest share of the company’s revenue.
It is powered by the Azure platform that helps businesses operate in the cloud. It offers solutions such as data storage, virtual machines and cyber security. The cloud is on track to become a $1.5 trillion annual opportunity by 2030, with most of the corporate world using this technology.
In Microsoft’s fiscal 2022 (ended June 30), Azure revenue grew roughly 45% (based on imputed quarterly growth reports because Microsoft doesn’t release Azure’s actual revenue), while its remaining business grew by just 18%. %
But still, even though Azure is helping Microsoft weather the current volatile economic climate, growth from its other divisions could kick into gear once interest rates ease. For this reason, as the chart below indicates, Microsoft has been a great long-term investment so it’s important to zoom in and focus on the big one.
With Microsoft stock currently down 30.6% from its all-time high, this could be a great opportunity to buy ahead of the next potential upside wave.
2. Apple continues to innovate and diversify.
Apple, the world’s largest public company valued at $2.4 trillion, has announced its new smartphone, the iPhone 14. While it’s exciting, it also highlights one of the company’s weak spots. As a premium-priced consumer electronics manufacturer, Apple is highly vulnerable to the health of the economy. However, it has been showing its revenue base over the last few years by offering a portfolio of services and the business segment is currently driving the growth of the company.
Those services include Apple Pay, Apple TV+, Apple News, and Apple Music, to name a few of the extensive list. The main advantage for investors is that the services division offers a gross profit margin of 71% compared to 52% for Apple’s hardware products. Simply put, delivering subscription-based services to customers is more profitable than selling devices, and recurring revenue makes it easier to build scale.
In the company’s fiscal 2022 third quarter (ended June 25), the services segment accounted for 23.6 percent of the company’s total revenue of $82.9 billion. During the previous year, it had a 21.4 percent share, so it is slowly becoming a bigger part of the overall business. In fiscal Q3, services grew 12% compared to a 1% decline in hardware revenue.
That said, the release of products like the iPhone 14 and the new, rugged Apple Watch Ultra will boost sales during the Christmas season. Both devices come with a bunch of new features. In particular, Apple has done extensive internal engineering on the iPhone 14, making it easier for technicians outside of Apple’s ecosystem to repair, allowing the devices to become more consumer-focused as a cost-effective alternative.
With Apple stock down an all-time high of 17.4%, this could be the opportunity some investors have been waiting for to buy shares at a discount.
Anthony Di Pizio has no position in the mentioned shares. The Motley Fool recommends Apple and Microsoft. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 calls on $130 on Apple. The Motley Fool has a disclosure policy.
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