Market Playground

By Jim Van Meerten

Right now there is an opportunity for both long term and short term investors in Microsoft (NASDAQ:MSFT). A bargain P/E ratio and recent price momentum means everyone can win.  Please look at the graph provided by Barchart of the hourly price movement over the last month. Microsoft seems to be kicking off a support level:

Microsoft Corporation (MSFT) develops, licenses, and supports a range of software products and services for various computing devices worldwide. The company’s Windows & Windows Live Division segment offers 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’s 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. Microsoft was founded in 1975 and is headquartered in Redmond, Washington. (Yahoo Finance profile)

Factors to Consider

Barchart technical indicators:

• Barchart uses price momentum technical indicators between 7 day and 6 month to determine a stock’s current price momentum and recently that momentum has been positive
• 48% Barchart overall technical buy signals
• Trend Spotter hold that is leaning toward a buy
• Below its 20 day moving average but above its 50 and 100 day moving averages
• Down 3.62% from its 1 month high and 10.03% from its 1 year high
• Relative Strength Index is 49.24% and falling
• Barchart computes a technical support level at 26.29
• Recently traded at 26.47 with a 50 day moving average of 26.36

Fundamental factors:

• This stock has been a long term Wall Street darling with 26 brokerages and 33 analysts following the stock
• Analysts predict sales will increase by 7.20% both this year and next year
• Earnings are expected to increase by 3.00% this year, 10.80% next year and continue by an increase of 11.12% annually for at least the next 5 year
• These consensus numbers resulted in 12 strong buy, 11 buy, 9 hold, no under perform and 1 lone sell recommendation
• The company enjoys an A++ financial strength rating
• The staff continues to keep a new pipeline of technology offerings coming at a steady clip
• The P/E ratio is 9.93 compared to the 14.00 P/E of the overall market
• The dividend rate is 2.39% and is only 25% of expected earnings

General investor interest:

• I measure individual investor interest by the readership of Motley Fool and this is the 4th most widely followed stock on the site
• 15,287 readers have offered an opinion on this stock and 87% voted the stock will beat the market
• The more experienced and savvy All Stars voted 91% for the same result
• Fool tries to follow what the Wall Street columnists are saying and 52 of the last 53 article about the stock were positive
• The lone negative call was by Jim Cramer but the stock has been up 8.72% since he made that call
• Those who disagree with Jim are David Tepper, Bill Nygren, Jim Jubak, Bob Ostein and Chris Davis

Competitors: 

I think its always important to compare the price action on a stock over the last year with those of its competitors and see that while Microsoft is up 1% Apple (NASDAQ:AAPL) is up 26%, Oracle (NASDAQ:ORCL) is up 12% and Google (NASDAQ:GOOG) is down 3%:

Summary:

If your asset allocation program has room for only one tech stock Microsoft (MSFT) might not be the best choice but if you’d like to add to your MSFT holdings or want to make a little short term profit you have an opportunity here.  The stock had and looks like it will continue to have a long and steady stream of increases in both sales and earnings.  The recent price is down 10.30% from its 1 year high and its current P/E of 9.93 is a healthy discount from the market.  You have a current opportunity to acquire a company with an A++ financial strength rating that has double digit earning increase forecasts coupled with a 30% discount to the market P/E.  Investing is never a sure thing but this looks like a no brainer.

Jim Van Meerten is a professional investor with over 40 year experience in investing in stocks, mutual funds and ETFs. He shares his knowledge on Barchart in his daily blogs – Barchart Portfolio. Jim Van Meerten is a Marketocracy Master.