Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter


Why Microsoft Stock Will Provide Major Investing Returns

Companies / Microsoft Jan 29, 2015 - 10:14 AM GMT

By: Money_Morning


Michael E. Lewitt writes: On January 26, software giant Microsoft Corp. (Nasdaq: MSFT) announced a disappointing quarter that sent Microsoft stock reeling by 10% on three times its normal trading volume.

It was the second major technology "miss" Wall Street had to digest in the last week's time, coming after a disastrous earnings release by IBM Corp. (NYSE: IBM).

In view of both Microsoft and IBM's earnings difficulties, questions arose about whether the "Big Tech" sector is in trouble…

… And just as importantly, is "Mr. Softy" the victim of the tech sector's difficulties, or is it simply muddling through some tough times?

The answer is actually quite simple if you know how to read the most important signs in the two tech giants' earnings reports and invest accordingly.

Indeed, making the wrong move on Microsoft stock could cost you big long-term profits in the end…

Microsoft's Fortress of Strength Shows No Weakness

Microsoft's fourth-quarter operating performance was good but suffered from difficult comparisons with earlier periods, a strong dollar, and poor performance in regions like China, Russia, and Japan.

The company announced better-than-consensus revenue of $26.5 billion, while gross margin, operating income and fully diluted EPS were $16.3 billion, $7.8 billion, and $5.86 billion or $0.71 per share, respectively. All were roughly in line with Wall Street expectations.

The computing and gaming hardware segment did well, as Surface and Xbox One were big sellers during the holidays.

Meanwhile, the critical cloud segment shined, with commercial revenue growing by 114% year over year to $1.3 billion, the sixth consecutive quarter of triple-digit growth.

The performance was especially impressive considering that cloud revenue is now reaching 5% of overall sales and becoming a meaningful contributor.

Conversely, and as I mentioned in this article, IBM has seen serial sales declines across all of its products and in all geographic regions for the last couple of years. Even worse, it has borrowed more than $35 billion dollars to buy back an equal amount of overvalued stock, leaving its balance sheet heavily leveraged with a debt-to-equity ratio of 340%.

In fact, IBM has negative tangible book value of about $17 billion. Meanwhile, the stock has been the one of the worst performers on the Dow Jones Industrial Average for two years running and could match that feat again in 2015.

In contrast, while Microsoft has minor operating issues, it maintains a fortress balance sheet that is a long-term buffer against financial distress.

As of December 31, 2014, the company had $90.25 billion of cash and cash equivalents, long-term debt of $18.26 billion, and tangible book value of $62.725 billion (a sharp contrast to IBM's negative tangible net worth).

Like many tech companies, Microsoft pays a small dividend of $1.24 per share (2.6% dividend yield), and could pay much more. With a $350 billion market cap, Microsoft is one of the most highly valued companies in the world (its market cap is 2.3x IBM's).

Investors appear most concerned about whether the company's corporate software business is growing long in the tooth. Windows, Office, and Server products sales rose only 4.6% from a year earlier compared with 9.5% and 10.5% growth rates in the two prior quarters.

It is too early to tell whether this is a blip or the beginning of a trend.

The company will be wrestling with lower earnings estimates, the transition to Windows 10, some gross margins pressures coming from a changing product mix, and difficult comparisons to its corporate software business in the year ahead.

However, as Microsoft wrestles with the transition, it's clear they have an "ace in the hole" who's already shown the Street he's ready to do what it takes to keep it on the short list of tech superstars…

Here's the Verdict on Microsoft Stock

After a strong rise of 28% over the past 12 months as investors got to know new Chief Executive Officer Satya Nadella and new Chief Financial Officer Amy Hood, Microsoft stock appears ready to pause. Indeed, it is hardly surprising that investors might want to take some chips off the table after the mildly disappointing fourth quarter…

But I view those sell orders as a mistake. In fact, this gives investors a chance to get in at a great price.

Microsoft remains a formidable company and if the stock drifts much lower, investors should pounce.

The company will generate over $90 billion in revenue in 2015 and was projected to earn $2.68 in 2015 and $3.15 in 2016 before the last earnings report. Analysts are likely to take estimates down by another $0.10 to $0.15 per share based on Nadella's recent comments at the earnings meeting, which could push Microsoft stock down close to $40.00, but anywhere in the low $40.00 range is a very attractive entry point.

At $41.19 per share, where it was trading at mid-day on January 28, the stock was trading at roughly 16x earnings, even with the S&P 500's forward multiple of 16x. But if you back out the $90 billion of cash on the company's balance sheet (almost $10 per share) the company is trading at a much lower multiple of 11x.

At that price, the MSFT is a steal.

Like many of the companies that I write about for Money Morning, Microsoft is an iconic American company trading at a reasonable price with a strong balance sheet, strong management, and a clear, sensible plan for the future.

Investors should be prepared to welcome it to their portfolio now that the stock has sold off and should aggressively do so if the stock drops to $40 per share. At 11x earnings, it is a long-term bargain and strong "Buy."

Is Microsoft in the same boat as IBM?

The answer is a resounding "No!"

Microsoft is no IBM; its future is bright.

Source :

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules