I only made one move in my Stocks and Shares ISA this week. But it’s one I’m extremely excited about.
There’s a stock that I probably should have bought a long time ago, but didn’t. And I finally got – and took – the opportunity to put that right.
Background: overthinking
One of Warren Buffett’s great insights into investing is that there aren’t any points for difficulty. Whether a company is easy to understand or complicated, famous, or obscure, doesn’t matter.
Ultimately, there are only two things that matter. The first is how much cash the business is going to produce over time and the second is how much an investor pays to own part of it.
Sometimes, the best stocks to buy are under-the-radar names that are hard to find. But this isn’t always the case and I’ve definitely overlooked some opportunities hiding in plain sight in the past.
Fortunately for me, I saw a chance to go some way towards putting that right this week. And that’s why I’ve added a new name to my Stocks and Shares ISA.
What I’ve bought
The stock is Microsoft (NASDAQ:MSFT). Pretty much everyone knows what the company is and what it does, but that hasn’t stopped it from being an outstanding investment in the past.
As I write this, the stock is down 1.76% from where it was 12 months ago. But there have been plenty of opportunities to buy it below its current price in the last five years.
I think, though, that now is a rare chance. In the last five years, the stock hasn’t traded at a lower price-to-book (P/B) ratio and its price-to-earnings (P/E) ratio has been lower once – briefly – in 2022.
Investors who bought the stock back then are currently up 70% on their investment, compared to a 57% gain for the S&P 500. And I’m hoping for similar success from this point forward.
Outlook
There’s a reason Microsoft shares are cheap right now. The stock market is worried about artificial intelligence (AI) and the firm is right in the middle of everything that’s concerning investors.
The company has committed to investing $150bn in AI infrastructure this year and there’s a risk this might not pay off. And AI could generate new competitors for its software products.
Microsoft, however, has its own AI product – Copilot. And with Office having a huge market share, creating a meaningful challenger that can convince customers to switch would be extremely hard.
The big investments are also designed to strengthen this position. Building out data centres that power its AI products gives the firm an integration advantage few competitors can match.
Better late than never?
I probably should have bought Microsoft shares a long time ago. But I struggled to see how a stock that’s so well-covered by analysts could possibly be a bargain (outside a market crash).
Fortunately, I’ve had a chance to put that right this week. And I’m pleased that I managed to be patient and wait for my opportunity, rather than forcing it at a P/E ratio of 38.
I’m more mindful of Warren Buffett’s advice about not making things unnecessarily complicated than I once was. But with Microsoft, I think it’ll be a case of better late than never.
