Forget Market’s Fear, Follow MSFT

by The Investment U Research Team

Looking at some of the headlines this morning doesn’t inspire a whole lot of confidence:

Wall Street in Retreat Mode, United States Lost Decade, Are Stocks a Loser’s Bet?. These headlines read as odd and over-anxious considering that markets rallied all last week.

It’s not like we didn’t see the S&P 500 (.INX) rally almost 6.5%.

So where does this reversal of opinions come from? Good question. We’ve been looking at seemingly over-exuberant markets for more than a month now, which have been climbing on negative news. And we don’t believe the reason is what you think.

The American Association of Individual Investors (AAII) has conducted a monthly survey on how we allocate our money between stocks, bonds and cash. And per the most recent survey, the percent of direct investments in individual stocks is at an all-time low of 17%, nearly half the historical average of 31%.

There is so much money on the sidelines that it’s starting to creep back in, regardless of the markets news. And that should only continue to increase.

It means that while we may not be in bargain-basement price levels, we’re still substantially undervalued from where we will be as this sidelined-cash flows back into the market.

It’s why we need to keep an eye out for companies that are reporting true strength, like Microsoft (Nasdaq: MSFT) did today. It announced that for the first time it would use it’s excellent credit rating to sell debt. And the best part is that the proceeds – $40 billion – are to be used to retire debt.

Shareholders couldn’t have asked for a better mother’s day gift.

Symbols mentioned in this article: .INX and MSFT.

• Microsoft Down But Not Out
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