I have been a strong advocate for buying Microsoft MSFT for nine months. The company is coming off twelve years where the stock did nothing despite consistently rising revenues and earnings throughout that time span. I think MSFT is starting to break out of that decade long slumber and its recent earnings report reinforced that stance.
Key highlights from Microsoft's earnings report:
1. Its Server & Tools Division generated $2B in net income, up 17% year over year.
2. Microsoft's Entertainment division lead by Xbox had net income that rose 15%.
3. The company also was hit less by the PC slowdown that analysts had penciled in and its online division continue to narrow its losses.
4 reasons to continue to buy Microsoft at $29:
· Its first phone with Nokia NOK is generating largely positive reviews and new models will follow shortly. In addition, Windows 8 is on track to be released late in 2012.
· Microsoft provides safety with an AAA rated balance sheet and a 2.8% dividend yield. It also has almost $5 a share in net cash on the books.
· Microsoft still sells near the bottom of its five year valuation range based on P/E, P/B, P/CF and P/S. It sells for about 7.5 forward earnings if you take net cash out of the equation.
· Based on this earnings reports, I would look for analysts to raise their price targets and/or their rating on the stock. Credit Suisse has an "outperform" rating and a $34 price target on MSFT.
Disclosure: I am long MSFT.