1 Growth Stock Down 25% to Buy Hand Over Fist on the Dip

The technology sector has struggled in 2022 with many popular high-flying growth stocks down more than 50% from their all-time highs. But there's a subset of quality companies trading more in line with the Nasdaq-100 tech index, which is down significantly, but down a less frightening 26%.

Diverse, profitable organizations tend to hold up better in difficult times, and the current tech bear market is a great reason to focus your attention on those opportunities. Software giant Microsoft (MSFT -0.37%) might be a best-in-class selection as it continues to expand its business into new segments.

Microsoft stock has lost 25% of its value since hitting an all-time high of $349 a share in November 2021; here's why that's a dip worth buying.

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Diversity is a winning formula

Since listing on the public exchange in May 1986, Microsoft stock has grown in value by over 261,000%. It crushes the 1,690% return of the broadly followed S&P 500 index over the same period. To put the return into context, an investment of $10,000 in Microsoft's initial public offering would be worth over $26 million today, assuming you held on.

1 Growth Stock Down 25% to Buy Hand Over Fist on the Dip

The company now serves billions of consumers worldwide through its software products, which include the Windows operating system and Office 365 document suite. While those mainstay segments propelled Microsoft into a household name, the company is also finding success in the hardware space where it has historically struggled.

Its Surface line of laptop computers and tablets has grown into a billion-dollar business on its own, which adds to Microsoft's highly successful gaming hardware brand led by the Xbox console. Both of these product categories are reported under the company's "More Personal Computing" segment, which generated $14.5 billion in revenue in the fiscal third quarter of 2022 (ended March 31) alone.

But Microsoft plans to take its gaming business to the next level through a $69 billion acquisition of Activision Blizzard. It's the game development studio behind popular titles like Call of Duty and World of Warcraft, and it could help Microsoft deliver a gaming segment unlike anything investors have seen before.

But when it comes to the company's growth, none of the above-mentioned business units are expanding as quickly as the cloud.

It's (mostly) about the cloud

When it comes to technology, cloud computing is as game-changing as it gets. Take a simple product like Microsoft Word, which is part of the Office 365 software suite, for example. It used to operate exclusively as a desktop application, and if the user wanted to share a document with somebody, they would have to save it locally and transfer it via email or on a USB stick.

With the cloud, Word (and most other applications) can run online. It has opened the door to collaborative work where multiple users can contribute to the same document in real-time.

But the technology has grown far more advanced over time. Microsoft Azure is the company's cloud services platform, and it offers over 200 different products to help organizations migrate their operations into the digital sphere. Whether a company needs data storage, collaborative tools for application development, cybersecurity, or even artificial intelligence, Azure has a solution to suit.

From a financial perspective, Microsoft's Intelligent Cloud segment is now the largest of its three main business units. It has been responsible for $54 billion of the company's $146 billion in total revenue during the first nine months of fiscal 2022 (which ends June 30), growing 27% year over year compared to 20% for the business overall.

A dip worth buying

A diverse company offers plenty of benefits in difficult times. When one business segment is lacking growth, there's always a possibility of another picking up the slack. And since Microsoft survives on a healthy diet of revenue from both individual consumers and business customers, it offers investors a great cross-section of the broader economy.

But circling back to the cloud for a moment; this opportunity could propel Microsoft to new heights over the long term. Estimates suggest the industry could be worth $483 billion in 2022, with the same estimates suggesting it will more than triple to over $1.5 trillion annually by 2030. Since Microsoft Azure is an industry leader alongside Amazon's Amazon Web Services, it's well-positioned to capture a hefty slice of this growing pie.

In the here and now, Microsoft stock is a great value. The company has generated $9.58 in earnings per share on a trailing-12-month basis, which places its stock at a price-to-earnings multiple of 27. It's a very slight premium to the Nasdaq-100 index, which trades at a multiple of 26, but given the strength of Microsoft's business, that's perfectly warranted.

Microsoft will likely be one of the stocks leading the broader market higher when it eventually recovers. But in the meantime, it's a great way to add some quality to your portfolio.

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