Money Morning's oversold pick of the week is tech giant Microsoft Corp. (Nasdaq: MSFT).
Sometimes stocks get beaten down unfairly - but they're actually a great value. The share-price dip then gives investors an amazing entry point into a good long-term investment.
Microsoft stock has been a favorite of Money Morning Capital Wave Strategist Shah Gilani and Money Morning Defense & Tech Specialist Michael Robinson for more than a year. And this week Money Morning Special Contributor Michael Lewitt, a Wall Street and hedge fund veteran, weighed in with a strong defense of MSFT stock.
A tech industry icon,
But selling Microsoft stock now is a big mistake...
"Microsoft remains a formidable company and if the stock drifts much lower, investors should pounce," Lewitt wrote in a Thursday Money Morning article. He noted that the quarterly results had tough comparisons with the year-ago period. And the areas that did well, such as the Surface Pro tablet and the cloud segments, are where Microsoft's future growth will come from. Cloud revenue grew 114% on top of a 128% gain in the previous quarter. And cloud revenue has grown to 5% of overall revenue, making it a meaningful contributor. Lewitt also likes Microsoft's balance sheet. The company had $90.25 billion in cash and equivalents at the end of 2014 versus long-term debt of just $18.26 billion.
But the key to understanding Microsoft right now is that it's a company in transition. There will be a few bumps in the road, but that road leads to higher profits. The legacy Windows and Office businesses needed an overhaul, and Nadella is doing that. Microsoft is rapidly moving Office customers to a subscription model. In the past quarter Office subscriptions jumped by 30%. And while Windows 10 will be a free upgrade for many customers, that move is part of a master plan to build up the Windows mobile ecosystem to compete with the iPhone and Android. Microsoft also debuted its most exciting technology in decades last week with the HoloLens. This goggle-like device is a next-generation holographic computing platform. The HoloLens proves MSFT can still come up with major innovations.
In the wake of Monday's Q2 earnings report, many analysts cut their price targets on MSFT stock and some downgraded it from a Buy to a Hold. That has pushed Microsoft stock down to $40.40 as of Friday's close, and it could go lower. "Anywhere in the low $40 range is an attractive entry point," Lewitt said. "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. MSFT is a steal." Investors should also note that Microsoft pays a dividend of $1.24 a share for a yield of 2.9%.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.