It appears as if the market is completely focused on the fiscal cliff 24/7 as the market zigs and zags to the latest soundbites from the leaders of each party. This could continue until some resolution is reached (my bet is mid-January after much more turmoil in the market). A lot of stories are not getting the play they deserve right now as they are drowned out by latest tidbit on all things related to the fiscal cliff. One trend I am watching is how many positive news stories are coming out on Microsoft (MSFT) right now, as I have the shares as a core part of the value and income segment of my portfolio.
Microsoft held its annual shareholders' meeting this week and several positive comments came out, including the following:
- Windows 8 is off to a solid start, with 40 million licenses already sold.
- Microsoft has sold four times more Windows-enabled phones than it did at this time last year.
- It now has 120,000 apps in its app store, which is a critical step in developing a supporting ecosystem for Windows 8.
- Office 365 is on track to be one of Microsoft's fastest growing businesses. This is a crucial part of Microsoft's effort to be part of the "cloud," and also to combat piracy overseas (aka China).
Outside the shareholder meeting, other positives are mounting:
- Conjecture is on the rise that Microsoft could pay a special dividend by year-end, given the amount of stock that Bill Gates and Steve Ballmer hold, to avoid higher dividend taxes in 2013. Given the massive amount of excess cash on Microsoft's balance sheet, I could easily see the company paying a special dividend that rivals the one it paid in 2004 ($3.08 a share).
- Although not getting as much attention as the iPad Mini, the new Surface is getting some good vibes as it's high on some holiday wish lists.
- Xbox is beating early holiday shopping projections due to new games like "Halo" and "Call of Duty." It also now has over 40 million Xbox Live subscription users -- a great source of recurring revenues.
- Finally, one of the "axes" of the stock, Nomura's Rich Sherlund, came out this week with a "buy" rating, saying the stock has $10 of upside.
Bottom Line: MSFT is selling at just over eight times forward earnings, has over $50 billion in net cash on its balance sheet, and pays a 3.4% dividend. It has a solid five-year projected PEG (1.04) for a 3%-plus yielder, as well as some exciting product launches. MSFT is a buy.