Microsoft (MSFT) continues to be the market leader in the computer software sector. The market likes its stock and both the business and individual consumer like the products. Revenue and earnings results continue to slightly beat the analysts' consensus and the market is reacting favorably. Although the stock was slightly down along with the rest of the market it appears a bottom has been reached.
A review of the hourly trading chart provided by Barchart shows a slight recovery from its support level:
Even though the market as measured by the Value Line index has not had a gain over the last six months MSFT has managed to gain 6% over the market for that period:
Microsoft develops, licenses and supports a range of software products and services for various computing devices worldwide. The companys Windows and Windows Live Division segment offers a PC operating system that primarily includes Windows 7 and Windows Vista operating systems; Windows live suite of applications and Web services; and Microsoft PC hardware products. Its Microsoft Server and Tools segment provides Windows Server operating systems, Windows Azure, Microsoft SQL Server, SQL Azure, Windows Intune, Windows Embedded, Visual Studio, Silverlight, system center products, Microsoft consulting services, and product support services. This segment also offers enterprise consulting services; and training and certification to developers and information technology professionals, as well as builds standalone and software development lifecycle tools for software architects, developers, testers and project managers.
The company's Online Services Division segment provides online information and content through Bing, MSN portals and adCenter, as well as Atlas online tools for advertisers. Its Microsoft Business Division segment offers Microsoft office; Microsoft Exchange; Microsoft SharePoint; Microsoft Lync; Microsoft Dynamics ERP and CRM; and Microsoft Office Web Apps, as well as office 365, an online service, offering Microsoft Office, Exchange, SharePoint, and Lync.
The company's Entertainment and Devices Division segment provides Xbox 360 entertainment platform, which includes the Xbox 360 gaming and entertainment console, Kinect for Xbox 360, Xbox 360 video games, Xbox LIVE, and Xbox 360 accessories; Mediaroom, an Internet protocol television software; and Windows Phone that provide Microsoft Office and Xbox LIVE functionality. It markets and distributes its products and services through original equipment manufacturers, distributors and resellers, as well as through online. The company was founded in 1975 and is based in Redmond, Washington. (Yahoo Finance profile)
Factors to consider:
Barchart technical indicators:
- Reversal of technical sell indicators can signal an entry point for stocks on your watch list that you presently do not own
- 32% Barchart technical sell signal - signal is weakening
- Trend Spotter sell signal - this signal would cross over to a buy somewhere around 30.50
- Presently above its 20 day moving average but still below its 50 and 100 day moving averages
- 10.70% below its previous 1 year high
- Relative Strength Index 47.16 and rising
- Barchart computes a technical support level at 28.68
- Recently traded at 29.36 which is below its 50 day moving average of 30.48
Fundamental factors:
- Widely followed on Wall Street where 30 brokerage firms have assigned 37 analysts to write recommendations for clients
- Analysts predict revenue will increase by 6.20% this year and another 8.90% next year
- Earnings estimates are for an increase of just .40% this year but to be followed by an increase of 13.70% next year and continue to increase at an annual rate of 9.13% over the next 5 years
- These consensus estimates resulted in analysts releasing 14 strong buy, 11 buy, 11 hold and a single sell recommendation - the sell is very old and hasn't been revised in quite awhile
- Analysts predict if the numbers continue to come in, investors could see an annual total rate of return in the 16% - 19% range over the next 5 years
- The company enjoys an A++ financial strength rating
- The P/E ratio of 10.51 is below the market P/E of 14.00
- The dividend rate of 2.77% is only 30% of estimated earnings and above the market dividend rate of 2.50%
- PC upgrades will benefit Windows 7 sales
- Windows 8 release is still slightly delayed but should be another nice hit for revenue when it is finally released
- The company is staying current with the development of mobile apps for mobile devices
Investor interest:
- As measured by the readers of Motley Fool a lot of individual investors have the stock on their watch lists
- 15,641 readers of Fool have given the stock an 87% vote to beat the market
- 90% of the more experienced and market savvy All Stars voted for the same result
- Columnists writing nice reviews of the company are Jim Cramer, Dave Tepper, Bill Nygren and Jim Jubak
- Barclays Capital Management, RBCC and Oppenheimer continue to have the stock on their core holding lists
Competition:
I always like to see how a stock holds up against its major competition and over the last year while Oracle (ORCL) stockholders lost 15%, SAP AG (SAP) was down 6% and VMWare (VMW) was off 4%, Microsoft investors' stock was up 21% plus the 2.77% dividend:
Summary: Microsoft is on the core holding list for investors looking to own stocks that have projections for stock price and dividend growth. At the present level it looks like an nice addition for conservative investors. The growth projections of both revenue and earnings are slightly higher than projections for the market but the stock is selling today at a slight P/E discount. Dividend investors will like the above average dividend and the A++ financial strength. As always nothing is forever and all investors should monitor the moving averages and 14 day turtle channel for exit points:
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MSFT over the next 72 hours.
