Microsoft Corporation (NASDAQ:MSFT) shares have been in a solid uptrend since the start of 2012. In January, the shares were just about $25 each, but have trended higher and the stock even hit a new 52-week high not long ago. The shares have pulled back from recent highs due to the correction in the stock market. Now, investors have a chance to buy this technology giant at a better price. The stock market is likely to remain volatile since the debt issues in Europe and the United States are far from resolved. Investors might want to consider using sharp drops in the markets as an opportunity to buy Microsoft shares. Here are 4 reasons to consider the stock on pullbacks:
1. Where else are you going to put your money? A bank account or money market will earn next to nothing, plus the money market or even the bank, (if you live in Europe), might not be that safe. If you invest in certain bonds, you could earn more, but if there is a recession on the way, high yield bonds could suffer. If you go with U.S. government bonds, the rate of return is minimal, especially if you consider the effects of taxes and inflation over time. With Microsoft shares, investors are paid a dividend yield that will beat most of these options, and it is likely to keep pace with, if not beat any future inflation.
2. While so many consumers, businesses and governments have weak to downright scary balance sheets, Microsoft stands out because it has a rock-solid balance sheet. The company has about $58 billion in cash and just around $13 billion in debt. This cash horde gives the company an incredible amount of strength and flexibility to pursue product development, promising acquisitions, and other options. A strong balance sheet also minimizes risk to investors in the event of sustained economic downturns.
3. Microsoft is about to launch the latest version of its operating system, Windows 8, in June. This version offers new features, better integration and functionality with tablets and smartphones. This software release should boost revenues for the company in the coming months. While most people think of Windows when they think of Microsoft, the company has a number of other popular products and services which include the Xbox and Kinect video game products, the Internet phone service Skype, and it even has investments in other tech companies like Facebook (NASDAQ:FB). Microsoft has proven that it can adapt and innovate, which is extremely important for a tech company to stay relevant, as shareholders of Research in Motion (RIMM) have come to learn.
4. Microsoft shares offer a solid dividend, plus dividend growth, and the potential for capital gains. The stock pays a yield of 2.7% now, and since the company earns over 3 times the 80 cent per share dividend, it has a strong chance of being increased in the future. An analyst at Morgan Stanley (NYSE:MS) says that the markets have not fully valued the shares, and he recently set a price target of $37 on the shares. Combine the strong balance sheet, new product launches, and a compelling dividend with the potential for capital gains, and you have a stock that should be bought on dips.
Key Data Points For Microsoft From Yahoo Finance:
- Current Share Price: $29.65
- 52-Week Range: $23.65 to $32.95
- Dividend: 80 cents per share which yields 2.7%
- 2012 Earnings Estimate: $2.70 per share
- 2013 Earnings Estimate: $3.06 per share
- P/E Ratio: about 11 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.