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Tech giant Microsoft Corp. (NASDAQ: MSFT), long shunned by investors who sought out more aggressive growth opportunities, is gaining support from a number of observers who believe the shares are not only relatively safe, but a bargain at current levels.
As was noted in yesterday's Analyst Action Round-up, Goldman Sachs upgraded the stock to "Conviction Buy," with analyst Sarah Friar raising her price target to $29 on expectations that the company's next set of offerings will be innovative and well-received winners. Friar also believes that search is back in play, with Google Inc's (NASDAQ: GOOG) near monopoly there threatened by a surprisingly successful Bing.
The Goldman upgrade follows a pair of bullish outlooks on Microsoft given by participants in Barron's Mid-Year Roundtable.
Fred Hickey, who writes industry newsletter The High Tech Strategist, called the stock "the best play in the tech world right now." He expressed enthusiasm about the company's numerous new offerings, and said that a 12x earnings multiple is simply too low for such a solid company. Microsoft's new offerings will "kick off an upgrade cycle for the whole computer industry."
Meryl Witmer of Eagle Capital Partners picked Microsoft as a sole stock she likes, saying that shares are worth about $31 when taking into account the cash on the balance sheet and a reasonable multiple on earnings, which have upside potential being discounted by the Street. Witmer believes that Windows 7, Microsoft's next-generation operating system, will far surpass Vista in gaining converts. She is also enthused by management's new-found objective to contain costs and maximize return on capital.
Shares were up 3% this week, compared to the broader indices, which were mostly flat.
Is Microsoft's current valuation really that compelling? The stock is trading at or near the bottom of its historical multiples in every major category. Even though Microsoft is often derided by early adopters for appearing stodgy and uninventive, the franchise has been extremely profitable over time and has repeatedly maintained its leading position in the face of competitive threats.
Despite this, Microsoft did not benefit disproportionately from a "flight to quality" when market conditions looked grim; shares have more or less tracked the Nasdaq as stocks have rebounded from their March lows. It's difficult to move the proverbial needle when a company becomes as large as Microsoft, and if investors want to play a recovery in business tech spending, there are likely many other opportunities offering superior leverage to that thesis.
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Reader Comments (Page 1 of 1)
6-20-2009 @ 10:29PM
Steve said...
I really want to get in on the Microsoft momentum. Seriously, this stock just hasn't gone down in so many sessions.
I am praying for one steep drop so a quick trade can be had. Only problem is, are we due for a major correction that would ruin the quick-trade potential?
In terms of valuation, I agree -- MSFT is cheap. Unfortunately, it has tended to remain cheap over the years...
6-22-2009 @ 3:15PM
Iridium said...
The hype of Bing is just as made up as the paid media hype of Project Natal.
Microsft pays a lot of people to hype thier products and uses a lot of guerilla marketing corporations to make it look like real people actually care. A large ammount of pro-microsoft blog posts are made by paid microsoft marketers.
Microsoft doesn't have a real growth engine. Remember all the Zune hype and all th efigures showing Microsoft making huge gains on Apple. What happenned with that one?
6-23-2009 @ 8:15AM
e.krabs said...
Eh, I too believe that Bing's initial number is mostly hype-driven. Whether their model will ultimately prevail against Google remains to be seen.
It's worth remembering that, once upon a time, other search engines had just as much, if not more visibility than Google. Altavista, Hotbot, AskJeeves, MSN, and even Yahoo perhaps. And yet, Google still triumphed.
However, that was back at a time when a large percentage of net users were still on dial-up, and thus bandwidth was a still premium. I think what helped them succeed back then was Google's "Less is More" approach to search was the best fit for that demographic.
Today, most are now on broadband, and perhaps Microsoft's "More is More" model will have a better chance to prevail.
However, I don't know too much about the "Decision Engine" from a technical standpoint, and whether this is something that Google will need to even worry about.
That said, I too think that MSFT is intriguing, if nothing else because of Windows 7. Initial reports of RC1 is surprisingly positive. The mainstream computing world is in need of a fast, responsive, and yet, reliable and secure operating system.
I'm a Linux guy/closet Mac fan myself, but I am also not blind from the reality of continued Windows dominance in mainstream computing. Vista, for whatever the reason, was unable to deliver, but 7 can.