Looking at Microsoft (MSFT), the old man of the tech industry, we see two possibilities for the stock. The company has some great long term possibilities but short term bearish income possibilities also. Let me paint a vision of what Microsoft can become long term if all the cards fall into place. This is a good argument to consider Microsoft as a long term investment if not yet in your portfolio. But short term it looks bearish which creates an income opportunity also.
Microsoft has a lot ventures in the work. Let's just start with Windows 8. As a new foundation for the company, we can see how this can be a catalyst for future Microsoft products and ventures. Maybe we can thank Apple (AAPL) for the evolution of icons as this new Windows sets the stage for a transition into a more visual world for Microsoft. The company will also be using ARM-based chips and this opens up the mobile space world for Microsoft. They have the alliance with AT&T (T) and Nokia (NOK) for a joint venture into the mobile device market already as they attempt to take on iPhone and Android. Microsoft is trying to become the "third" mobile network base-providing an alternative for consumers. The world of Smartphones, networks and pads are just starting to grow and the market is huge.
None of this information is new, but it points out how the company is positioning itself to be a prime player in these fields. That may not be new, but have you pictured Microsoft's Bing being able to challenge Google (GOOG) in the search engine market? Most people and analysts agree that the game of search as we know it is over and Google has won. Taking the company on head to head is not smart, no one will out-compete Google if search remain more or less the same. But there is a twist-it involves an evolution in the search engine market as Microsoft and Facebook (FB) team up.
Microsoft and Facebook can help each other if they team up to compete with Google. It started with the launch of an updated version of Microsoft's Bing search engine, featuring a "social sidebar" that has tighter integration with data from Facebook. The integration with Facebook allows the user to:
- Post a question to get help from your Facebook friends as you search,
- 'Tag' friends Bing suggests might know about the topic
- In a few simple clicks, you can share your search and your friends can reply to your question on either Facebook or Bing."
This is the start of a new evolution for search engines combining with social networks. It's the first step, but more integration between the two will need to take place. Baird analyst Colin Sebastian stated;
"Short of becoming prominently displayed as a default search engine on Facebook, the new Bing is unlikely to effect a meaningful impact on Google's market dominance."
If done correctly, this transformation of search engine mechanics could really have an impact upon Google's dominance in this field.
So one can see just by looking at this picture how Microsoft is positioning itself for relevant markets as technology evolves. Anything can happen, but if all goes like the company wants things to go, the growth potential is amazing. These are good reasons for long term consideration for Microsoft in your portfolio.
If one is considering the company on a short term basis, we would advise a short term income strategy because the stock appears to be in a bearish trend. In fact, the whole tech sector (XLK) appears to be in a bearish trend. In fact, it is trading in a bearish wave, which is becoming stronger. Microsoft is following this wave. For this reason we would suggest a Bear Put Spread that provides limited risk.
The Options Play
- Buy the July 2012 put with the strike of '30' (priced at $0.98)
- Sell the July 2012 put with the strike of '29' (priced at $0.65)
- Net Debit to Start: $0.33
- Maximum Profit: $0.67
Reasoning behind the Trade
- The markets are bearish as a whole.
- The Tech sector is bearish.
- Microsoft is following the sector as a whole.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.