One Tech Growth Pick You Can't Afford To Miss

| About: Microsoft Corporation (MSFT)
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Microsoft (NASDAQ:MSFT) is the world's biggest makers of PC operating systems and office programs, powering the vast majority of laptops and desktops. It has an annual revenue of nearly $70 billion and 11 products that earned at least $1 billion a year.

Though the emergence of innovative mobile devices has put Microsoft's position as the dominant provider of software to consumers at risk, I believe Microsoft remains an important software provider and that its stock price will grow in the next few years. While its rivals such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) have staked claims as the leaders of the sizzling mobile sector for tablets and smartphones, Microsoft is going through a major reorganization, and the next few years will be crucial for the company.

I believe Microsoft will be able to rebound for several reasons. First, Window 8, a redesign of the company's flagship operating system since 1995, features a new technology enabling the system to work on touch-controlled tablet computers. Second, Microsoft's Surface, the first tablet computer produced in-house, and part of the company's strategy to challenge Apple's iPad, has been applauded by reviewers since its release recently. Third, the company is planning to release a revamped office software next year, and it will work on tablet computers running on Window 8. And finally, Microsoft has a leading position in markets where iPhone and Android's smartphone are still out of reach of the majority of the population. For example, Microsoft is still the leader in emerging markets due to the company's dominance of PC operating systems and office software. At the current price of $28 per share, Microsoft provides a solid investment in the tech sector.

Even though the company recently posted its first-ever quarterly loss since going public 26 years ago, the announcement did not affect the company's share price, as investors awaited the launch of Window 8. Quarterly revenues rose 4% to $18.1 billion. Excluding the adjustments and the deferral of some revenue into the current quarter owing to the launch of Window 8, earnings came to 72 cents per share, beating the 62 cents per share expected by analysts. At $32.32 then, shares rose 65 cents in after trading upon the release of the earnings results. Its current price-to-sales ratio is 3.24, compared to 3.66, 4.67, 4.03, and 2.88, for Apple, Google, Oracle (NYSE:ORCL), and industry average. Its price-to-earning is competitive at 15.25, compared to Apple (13.68), Google (21.16), Oracle (15.39), and industry average (22.38). Looking forward, Microsoft could resume its dominant position and achieve growth if the Window 8 becomes very successful. Assuming the launch delivers on its goal of making Microsoft a significant player in the rapidly growing tablets computer market currently dominated by Apple, the pressure will no longer be on the company.

Microsoft is currently going through a reorganization process that should be completed 2013 or 2014. It has introduced the biggest overhaul of the window software in decades, reflecting the stakes in the struggle with Google and Apple for the loyalty of customers who are shunning personal computers and moving to mobile devices. To ensure success, Microsoft has scrapped a strategy that had partners produce window computers. To restructure the company, it wrote off $6.2 billion, the entire value of an online advertising service it bought five years ago.

Obviously, Microsoft has problems with its competitors. Though its Bing search engine often gets high marks in studies that rate the effectiveness of search engines, it is Google that captures two-third of the US market share and more than 80% of global market. Besides, Google has continued to invest in products that eat into Microsoft's market share, like Chrome and Android.

The rise of Mozilla Firefox and Google's Chrome has broken Microsoft's monopoly in the browser market, just as Microsoft challenged Netscape years ago. Even though Microsoft is moving toward a faster release schedule that brings improvement to its internet explorer, it wouldn't be easy to contain the challenge of Chrome and Mozilla Firefox.

To make things difficult for Microsoft, Apple installed the touch screen technology in its iPad. Microsoft's Window 7 tablets are not optimized for touch screen , and Window 8 won't be out until sometimes next year, leaving Apple to dominate the tablet market. Competition from Apple made Microsoft's Window phone Q2 sales to drop from 3 million last year to 1.7 million this year, making the device even less popular than Bada, a smartphone operating system developed by Samsung, which also partners Google on Android.

But according to market research firm DC and Gartner, Microsoft's window phones will top the iPhone in market share by 2015. The firm stood by its prediction even when Bada outsold Microsoft's window phones, saying window will become the number three mobile platform three years from now, although the turnaround will happen mostly outside the United States and not immediately. While Google and Apple are leading in the mobile phone market, I think anyone who believes Microsoft won't offer competition in the future is completely wrong.

Microsoft is reinventing itself. Google and Apple have a head start in the mobile sector for tablets and smartphones, but the change Microsoft is undergoing is impressive. It is responding to the challenge of its rivals, and it will include the first window machines capable of running on chips with technology from ARM Holdings, instead of Intel (NASDAQ:INTC). Its entry into the tablet market will allow the company, among other things, to become significant player in the tech sector once again. Microsoft is catching up on its rivals. Given all these, I believe that Microsoft is a solid investment with the potential to grow significantly in the next few years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.