For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...
Microsoft: Turning a Big Ship
03/06/2015 7:00 am EST
Investors should remember that big ships turn slowly and this recommended stock is a very big ship indeed, explains Tyler Laundon, editor of Daily Profit.
Microsoft (MSFT) is stepping up its game. The release of Office 365 likely represents the biggest strategic move by the company in years. Forget about the acquisition of Skype, the purchase of Nokia's phone business, and even the introduction of the Xbox.
The future of Microsoft is exemplified by Office 365 and it appears to be working. In the last quarter, commercial cloud revenue rose by 114% year-over-year, confirming that the company's strong push into cloud computing is paying off.
The key innovation with Office 365 is that it is designed to work across all devices. That means it works with Apple iPads, iPhones, and MacBooks, as well as devices that run Android. This is a huge deal because it finally allows virtually everyone out there to use Windows again.
The announcement that Microsoft won't charge for users to upgrade from Windows 7 and 8 to Windows 10 is yet another sign of its commitment. Microsoft is trying hard—very hard—to make it possible for anybody with a phone, tablet, laptop, or PC out there to be a customer. I believe it will succeed.
And I fully expect revenues and earnings per share will grow at 10% to 15% over the coming years. That growth should handily outpace that of the S&P 500, yet Microsoft still trades at a discount on a price-to-earnings basis.
I don't expect that disconnect to last much longer. Already we've seen a rapid rebound from the post-earnings drop. And I expect that shares will continue to move higher in 2015.
Yes, I know Microsoft recently reported a 9% decrease in quarterly earnings. And management lowered current quarter revenue guidance by $3 billion below what analysts were expecting.
But this is all noise in an otherwise strong push by Microsoft to reassert its dominance. With the stock at $43.50, yielding 2.8%, and trading with a forward P/E below 15, it's hard to argue against Microsoft.
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