Microsoft (MSFT) is a very appealing choice for a long term defensive position in the tech sector. This asset has consistently strong financials and liquidity metrics with an adequate annualized dividend and promising potential for capital appreciation in the long term. There are also many recent developments to substantiate a bullish outlook on Microsoft as it attempts to take on its main ecosystem competitors and release the new Windows 8 OS. Microsoft has multiple options for launching mobile Windows 8 for both smartphones and tablets. It's also making key investments to grow organically and reassert its position as the leading pioneer in the tech sector. Current shareholders should hold long term, while interested investors should buy before Windows 8 OS and smartphones begin to hit the market in late October and early November.
Apple (AAPL) and Google (GOOG) are Microsoft's main competition, offering comprehensive ecosystems, including an OS and applications for consumers. Apple and Google currently lead the consumer market, while they are still trying to gain on Microsoft in the business sector. Some of Microsoft's main competitors in the enterprise products and services sector include Oracle (ORCL) and Cisco (CSCO). Both of these firms have their own unique platforms for business applications and cloud SaaS. Apple's $655 billion market share is the highest, Microsoft's $261 billion is next, Google's is around $232 billion, while Oracle is $161 billion and Cisco is around $101 billion. Microsoft's price is around 15.6 times earnings, lower than Apple at 16.4 times earnings, Google at 21 times earnings, and Oracle at 16.8 times earnings.
Microsoft's price-to-sales ratio is around 3.55; only Cisco's 2.2 ratio is lower. Apple and Oracle's price-to-sales ratio is around 4.4, while Google's is around 5.4. Microsoft's $2.00 EPS is higher than Oracle's $1.96 and Cisco's $1.49; Apple's EPS is around $42 and Google's is $33. Microsoft's 5 year sales growth was around 7.6%, only Cisco's 5.69% is lower. Microsoft's 3.98% sales growth in the past quarter, YOY is only higher than Oracle's 1.31%. Microsoft's current and quick ratios are around 2.6, even with Oracle and greater than Apple's around 1.55. Microsoft's 0.18 debt-to-equity ratio is lower than both Oracle and Cisco, both of which exceed 0.30. Microsoft's 27% return on equity is second behind Apple's 44%. Microsoft's 30% operating margin and 23% net margin are only higher than Oracle's corresponding ratios.
Both Apple and Google's prices are around $700 per share. Oracle is around $33, while Microsoft is around $31 per share. Microsoft's average daily volume is around 38 million shares, only lower than Cisco's 41 million shares. Microsoft's beta score is very close to one - the lowest among the aforementioned firms. Microsoft's annualized dividend is around $2.56, the highest among these firms. Google and Apple don't offer a dividend and Cisco's $1.94 is the next highest. Microsoft's stock has increased by 22% YTD through mid-September; double the growth YTD of either Google or Cisco. Microsoft is 4% below its 52 week high and its stock has increased by around 0.7% since its last earnings release.
Microsoft's recent earnings release details its current operations as it assesses its competition and projects catalysts for growth in the near term. Total revenue was $73 billion a 5% increase, YOY. Windows revenue was $18.3 billion while Server & Tools revenue was $18.6 billion and increased 12%, YOY; operating income here was $7.4 billion, an 18% increase, YOY. Microsoft Business Division is the largest portion, accounting for $23.9 billion in 2012, increasing 7%, YOY; operating income was $15.7 billion, a 7% increase, YOY. MS Office generates 90% of the business division revenue while around 80% of the revenue is from sales to businesses. This shows how unique and effective MS Office 2010 still is to large, midsized and smaller organizations.
In a recent interview, CEO Steve Ballmer discussed the present operations and future projections for Microsoft. Several topics were discussed; he feels Windows 8 will be innovative and groundbreaking and stands by the stacked-ranking system in order to reward talented employees. Earnings continue to grow for Microsoft; it is a proven commodity despite the speculation about the next OS release. Ballmer has no doubts about Windows 8 and feels it well help propel the PC market to 400 million units sold. Windows 8 embodies Microsoft's focus on mobile computing and Ballmer feels the standard PC or tablet platform has yet to be defined in this new era.
Ballmer cited the Kindle and tablet as seemingly novelty devices, but not work devices like the Surface or laptop would be. Microsoft's focus is still on the enterprise market, but Windows 8 is expected to regain perceptions as an innovator amongst consumers. New phones, great software and integration with hardware vendors are the focus for Microsoft looking forward. Ultimately, Microsoft will become more of a devices and services tech firm opposed to primarily software. This idea is promising for the long term, but in the near term it may cause delays with manufacturers attempting to get devices and touchscreens approved by Microsoft before November.
Microsoft will provide its 94,000 full-time employees with Windows 8 PC devices and phones in order to increase productivity and promote the new products. Microsoft is also investing in employees by hiring 1,000 in China in order to improve its market share and new product launches in the one of the world's fastest growing economies. Microsoft will also increase R&D spending in China by 15% throughout the year. Microsoft recently completed its Israeli Innovation center; this is one of Microsoft's 31 technology centers that focuses on creating customized IT infrastructure products, cloud systems and new Windows 8 services for enterprises.
Microsoft will also be launching 32 temporary retail locations for the holiday season and has plans for up to 75 additional permanent retail locations aside from the 23 currently open. The recent Apple patent claims may compel Samsung to make more phones for Windows 8; if both Samsung and Nokia (NOK) are making Windows 8 devices, Microsoft can significantly penetrate the worldwide mobile OS market share over the long term. Improved penetration in the mobile PC sector, retention in the enterprise sector and innovative portfolio expansion will help Microsoft increase its market value and maintain its leadership position in the tech sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.