I last wrote about Microsoft (MSFT) in mid November when the stock had dipped to about $26.50. This was the beginning of a period of consolidation for the company. My outlook on investing in the company at that time was "be cautious" because I didn't expect the stock to move that much in a short period of time. This is the opinion I wrote:
"I do not think investors should expect a big change in a short period of time…Investors should remain cautiously optimistic and very patient."
So the stock has moved sideways since its slide down. When it finishes consolidating, will it continue down or will it move up? Long term, I think the company is stable and will be consistent.
Stability Long Term with Present Products
I cannot tell you how Microsoft will move in the future or how business and the general public will embrace Windows 8 this year, but I do believe Microsoft is a solid company with core products that will keep it competitive for years to come. With a dividend of 3.5% (Yahoo Finance) income investors have a company they can count on in the tech industry. Let's take a look at its main income sources and what they look like in the future.
Microsoft has three main sources of revenue:
- Microsoft Office Suite ($23B revenue, 60% margin, 95% market share)
- Windows OS ($17B revenue, 75% market share)
- Windows Server Business ($18B revenue, 40% margin, 75% market share)
One thing the server business has going for it is the seamless (click to enlarge) service it can provide businesses. Any company that may use an exchange server may be using a Windows-based PC. To keep things streamlined and simple, it is likely businesses will use Microsoft products that complement the server such as Windows Phone and/or Surface. This may be one of the company's key products of growth in the future.
So What Should I Consider in 2013 as an Investor?
If I am looking at Microsoft, I am observing three products and I want to know how they are going to do this year. Those are Windows 8, the Surface Tablet, and the Microsoft Phone. How these three products are embraced will possibly dictate how the stock will perform this year. Short term, I do not think Windows 8 would be my first choice to look at. Generally speaking, I believe it is more geared toward the mobile market and not PCs in general I think when Microsoft's developed this OS it had this in mind. I do not believe companies will just run out and embrace the new OS that looks like a brand new language compared to the old styles. The time and cost to learn this system, in a poor economic environment like we have now does not seem conducive for businesses.
I have a small concern as an investor when Microsoft comes out with the Surface run on Windows 8 at $899.00 This price looks more like it is going to be competing with Ultrabooks. Would your basic consumer be more willing to buy the Surface or a high end Ultrabook? Others are asking the same type of question. These thin laptops are coming down in price this year so at $899.00 one can get a nice book.
If growth would come anywhere it may be with the Windows phone working with Nokia (NOK). The Windows Phone was the fastest growing OS in 2012. This is what I would keep my eye on as an investor, if I am watching the company for short term growth. Revenue and earnings have not been stellar the last couple quarters so I want to see how the Phone is embraced. I believe this may be the key to the company's success in 2013.
After its journey down from mid September until mid November, the stock has been moving sideways. What can we glean from observing the chart? This consolidating movement has remained bearish and if the stock was going to move up, I would like to see some bullish influence but I do not think I am seeing that. The RSI indicator has the present highs barely pushing above the '50' line into bullish territory. Lows seem a bit higher, but I just do not see a move up yet. The MACD MA's also appear to be peaking out well below the '0' line. The stock continues to move sideways between the upper and lower Bollinger Band in a peak and valley pattern with a bearish influence.