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While analysts expect Microsoft's (NASDAQ:MSFT) earnings per share to grow by 11% from $2.72 to $3.04 going into its next fiscal year - impressive for a company Microsoft's size - its stock price is only expected to rise by about 29% to a high of $40 a share. That is a respectable return -- until one considers that some analysts have predicted that Apple's (NASDAQ:AAPL) stock could reach $910 per share in a year's time - for a return of nearly 60%. Similarly, Microsoft trades at a Price-Earnings (P/E) Ratio of 11 - just half of the 22 P/E that the S&P 500 (of which Microsoft is a component) enjoys.

The value of Microsoft's shares suggests that the market perceives it as a laggard in the post-PC era. Indeed, critics have generally regarded its offerings as me-too or derivative of other platform while technology observers have questioned Microsoft's execution. For example, it shuttered its heavily touted Kin (a.k.a. "Project Pink") line just weeks after launch.

Meanwhile, in the trend-setting US market, its 2-year old Windows Phone software had only a 1.7% share of the Smartphone OS market through the end of the First Quarter, badly trailing Apple's iOS and Google's (NASDAQ:GOOG) Android platforms, which hold 32% and 48.5% of the market, respectively.

For all that the market's mind-share seems tilted in Apple and Google's favor, rather than seeing Microsoft as a company whose best days are behind it, I see it as a company entering its second act.

To begin with, Microsoft is looking at a radical software offering in the fourth quarter of 2012 with the expected release of Windows 8. Consequently, Microsoft expects to reap the benefits of the PC upgrade cycle that commences whenever it releases a new version of Windows - and this has driven the favorable consensus on its earnings prospects.

More than simply driving earnings, however, the release of Windows 8 is not "more of the same" Windows - it represents Microsoft's first genuine attempt to embrace the Post-PC era by unifying its software across all platforms and devices. Even its current Windows Phone software, which has drawn favorable reviews from Apple co-founder Steve Wozniak, is actually the final iteration of its old Windows CE platform

This is the same tactic being employed in increments by Apple with its OSX Lion/Mountain Lion upgrades - but Microsoft has boldly chosen to go ahead and take a big gamble - a not-inconsequential bet considering the relatively recent failure of its "game-changing" Windows Vista - but a wise one considering that Tablet sales are expected to exceed PC sales by 2013.

The added benefit of unifying its software platform is that Microsoft, if successful, will be able to challenge the mobile ecosystems of Apple and Google by leveraging its dominance in the PC market to encourage developers to produce software for Windows-based mobile devices - something that it's had limited success with on Windows Phone.

Microsoft is looking to gain an edge in the tablet market. Contrary to popular expectations, Microsoft may be looking to leverage its long-time partnership with Intel (NASDAQ:INTC) with the expected introduction of Windows 8 tablets running on Intel's low-power, high-performance Clover Trail mobile processors. This makes sense for both parties: Microsoft is looking for an edge over Apple and Google in the Tablet sphere and Clover Trail is expected to provide performance boosts over the ARM-based processors widely used on iOS and Android-based systems. Meanwhile, Intel is looking to break ARM Holding's (NASDAQ:ARMH) dominance in the non-PC mobile device space.

With the Post-PC era's emphasis on consumer devices, the role of intellectual property has been thrust into the spotlight. The recent lawsuits between Apple, Google, Samsung (OTC:SSNLF), Motorola Mobility (NYSE:MMI) and Microsoft only serve to emphasize that, going forward, companies will need to invest heavily in intellectual property to eke out an advantage over the competition. Microsoft is well placed in this regard, having ranked 6th in Patent Awards in 2011 after placing 3rd in 2010.

With $59 Billion in cash and equivalents, I expect Microsoft to continue to acquire or develop more offensive and defensive patents. The Patent Office granted 2,311 patents to Microsoft in 2011 and Microsoft spends close to $10 Billion per year on R&D. What's more, Microsoft's patent "war chest" provides it with potential cash flow streams in the form of patent licensing fees - as well as defensive legal cover from the sorts of lawsuits that have so distracted Google in the past year.

Part and parcel of the post-PC era is the shift to the cloud. While Microsoft recognized the value of the cloud early on and has received plaudits for its excellent SkyDrive, Office 360 and other cloud-based enterprise services, more attention has been lavished on Apple's iCloud service and Google's recently announced Google Drive cloud storage service.

Indeed, the tremendous publicity leading up to Google Drive's official launch probably factored into Microsoft's decision to re-launch its own cloud offerings under the Microsoft Account and Azure brands while placing greater emphasis on the consumer aspect of its SkyDrive storage service. Regardless, Microsoft remains well placed in the cloud.

Conclusion

In many ways, Microsoft's story reminds me of IBM (NYSE:IBM). In the first half of past decade, IBM struggled with the shift from the Server/PC era to the Cloud/Web Services era before eventually re-establishing itself as a Services company. There was a lot of pain for investors leading into its evolution but, from 2007 to 2012, IBM's stock price doubled.

I believe that Microsoft is about to experience a similar shift - and that like IBM, it has begun its second act. With that in mind, I expect Microsoft's stock to double in the next three years.

From a value perspective, Microsoft also offers something that its rivals do not: a decent dividend yield that is not likely to dry up soon. Currently, Microsoft's 2.6% yield is superior to Apple's 1.81% - and more than double the 1.2% average dividend yield of the tech sector. Moreover, Microsoft trades at just around 4.5-times its Book Value, compared to 11.5-times for IBM and 7-times for Apple.

I expect Microsoft's dividends to continue as it bolsters its cash stockpile from its Windows 8 rollout. Meanwhile, its expected divestment of shares in Facebook upon the latter's IPO should bring in another $1.4 billion - money that could eventually find its way into investors' hands. That said, I believe that Microsoft's best use of its cash is on R&D reinvestment.

Source: Microsoft Could Double By 2015