The Alpha Algorithm Ups Its Bet on Tech

With the tech sell-off in U.S. stocks abating, this week the Alpha Algorithm takes you back into Microsoft Corporation (MSFT), which you stopped out of on June 8 at $71.50 for a 10.12% gain.

Microsoft remains the second favorite holding among all of the Alpha Algorithm strategies. Founded in 1975 and based in Redmond, Washington, Microsoft Corporation develops, licenses and supports software products, services and devices worldwide.

The company licenses the Windows operating system and related software, as well as Microsoft Office for consumers. It also provides Xbox gaming and entertainment consoles, Lumia phones and Skype.

Microsoft versus the S&P 500 over the past six months.

13 Investment Strategies Betting on Microsoft (MSFT)

1. Momentum Factor

The stock is one of the top 120 large- and mid-cap U.S. stocks exhibiting relatively higher price momentum, as measured by a specific factor which historically has driven a significant part of companies’ risk and return.

2. Goldman Sachs’ Active Beta

The stock is selected according to four factors — value, quality, momentum and low volatility. These, in turn, are based on criteria including book value, sales and cash flow scaled by share price, profit/assets or return on equity (ROE), risk-adjusted returns and daily standard deviation of returns.

3. High-Quality Stock

The stock exhibits positive fundamentals, including high return on equity, stable year-over-year earnings growth and low financial leverage.

4. Capital Strength

The stock is part of a strategy that seeks to outperform the market by selecting companies based on the strength of their balance sheets, long-term debt ratios and return on assets (ROA).

5. Hedge Fund Alpha

Based on publicly available disclosures, successful hedge fund managers are investing in the stock.

6. Fundamental Strength

It is a top U.S. stock based on fundamentals measured by book value, cash flow, sales and dividends.

7. Hedge Fund Gurus

Microsoft is one of the top U.S.-listed equity positions reported on Form 13F by select hedge funds with concentrated top holdings.

8. Morningstar’s Moat

This stock is included in a strategy that tracks an equal-weighted index of 20 companies which Morningstar determines to have the highest fair value among firms with a sustainable competitive advantage or “moat.”

9. Small-Cap/Value Tilt

Selected using a multi-factor modeling approach, the stock is a smaller-cap or value stock designed to enhance portfolio risk/return characteristics.

10. Large-Cap Momentum

The stock is part of a major hedge fund’s systematic strategy that invests in large- and mid-cap U.S. companies with positive momentum and that rank in the top third of total return over the prior 12 months, excluding the last month.

11. Large-Cap Growth

The stock is among the top 50 large-capitalization U.S. growth stocks generated through a rigorous 10-factor fundamental screening process.

12. Billionaire Bet

The stock is one of 30 U.S. companies tracked in an equal-weighted index selected from the portfolios of 10 asset managers with a personal net worth of at least $1 billion.

13. Goldman Sachs Hedge Fund Index

The stock is part of the Goldman Sachs Hedge Industry Index, which tracks an equal-weighted index of the 50 most-frequently held U.S. companies selected from the portfolios of hedge funds.

Recommendation

Buy Microsoft Corporation (MSFT) at market today. Place your initial stop at $64.00.

Options

If you want to play the options, I recommend the MSFT October $70 calls (MSFT171020C00070000) which last traded at $3.63 and expire on October 20.

Portfolio Update

Sincerely,

Nicholas A. Vardy