"Microsoft (NASDAQ: MSFT) is a well-run company with a fortress-like balance sheet," says growth stock expert Brandon Clay.
In his Invest with an Edge he suggests, "Maicrosoft's war chest of cash and their ability to sparkle with products like Bing makes the company an attractive long-term bet." Here's the advisor's review.
"Microsoft was once the kind of stock investors dreamed of owning. Rising thousands of percent from its IPO in the mid-1980s to the late 1990s, Microsoft was at one point the largest U.S. company by market cap.
"As technology evolved and Microsoft matured, Wall Street turned its focus to 'sexier' areas of technology like Internet stocks. Operating system software wasn't the in-thing anymore. Microsoft became a value stock rather than a growth play.
"Microsoft joined Intel as the first pure technology companies to become members of the Dow Jones Industrial Average. Nothing says 'value stock' like being a Dow component.
"More recently, Microsoft learned a lesson in futility by challenging Google in the search business. In addition, it falls well behind Apple in the consumer gadget arena. As such, many investors have passed over Microsoft.
"This may be set to change though. Microsoft is a well-run company with a fortress-like balance sheet featuring $8.65 billion in free cash flow and $23.9 billion in total cash. That works out to $2.69 a share in cash. The shares yield 2.3%.
"Microsoft hasn't given up on challenging Google on the search battlefield. We've opined on how new technologies can be game-changers for certain companies. Consider how cloud computing could play the spoiler. What's the near-term catalyst? Bing.
"Microsoft is unlikely to top Google's 60-70% share of the Internet search market, but it may be able to usurp one-time acquisition target Yahoo for the number two spot.
"For many followers of Microsoft's shares, that may be good enough. Bing is just a month old and has yet to significantly impact Microsoft's bottom line.
"However, the growth potential in search is compelling. Microsoft is spending heavily to advertise Bing. Early reports are promising.
"Another catalyst to consider is a new upgrade cycle that is likely to follow the forthcoming introduction of Windows 7. Expectations are that Microsoft's newest operating system will be far superior to the tedious Vista.
"Microsoft's profit margins are being challenged in the low-cost 'netbook' segment, where many manufacturers offer Linux-based alternatives.
"However, manufacturers of netbooks are finding sales accelerating once Windows is loaded, and Microsoft might be pleased to sacrifice margin in favor of volume.
"The stock seems to be firmly supported around $22. Microsoft's point-and-figure chart also shows a bullish trend, with a price objective of $33.50."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
8-20-2009 @ 4:47PM
ddavis7821 said...
This may be true about the possible future value of Microsoft shares as an investment. But I think we should conclude there is something wrong with USA corporate tax policy when a company with $23.9 billion in cash finds it necessary---or even socially possible---to lay off 5000 workers, as Microsoft announced some time ago that it would do. We hear that lower corporate tax rates are supposed to create jobs. Microsoft appears to be an example of the opposite. I'd rather see them in the either/or scenario. Either employ people with your profits or pay higher taxes.
8-13-2009 @ 5:46PM
Paul said...
MS has been an awful investment for a decade. And every single one of those, I've read someone writing about how this year will be different, its balance sheet is unparalleled, its pipeline of products has never been better, etc. It won't be. MS has a five year average stock return of -2% and a 10 year return of -60. It is not well run and has missed new trends consistently. Its profitable legacy businesses are facing slowing PC growth and margin pressure due to competitors. It new businesses are failures. With decreased profits from the old, and only losses to show for the new, MS stock will continue its long term decline.
@ ddavis
In FY09, despite a 29% decrease in profits, MS actually grew headcount by 2%. That's including the 5000 layoffs, many of whom were rehired. Do you know many businesses that did the same in this recession? It's probably a very short list. MS isn't a welfare agency. It needs to cut at least 10,000 employees (really cut, not announce and then rehire) to even begin getting costs back into line with diminished future prospects.