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Top Picks 2016: Microsoft - A Top Pick for Growth Investors
01/29/2016 7:00 am EST
Our Top Pick for growth investors is a dividend-paying tech company with a relatively new CEO; the stock performed well last year but remains somewhat underappreciated by the market, observes Genia Turanova, editor of Leeb Income Performance.
When assessing the investment case for Microsoft (MSFT), we argue that the tech giant is handing the slowdown in its core PC business well, and that its new emphasis, on cloud, mobile, and services, has begun to bear fruit.
Under the leadership of CEO Satya Nadella, Microsoft has been transforming itself from a Windows- and PC-centric enterprise to a more diverse company, a force in the modern mobile-based world.
Revenue from commercial cloud services, for instance, more than doubled in fiscal 2015. And by most measures, the Windows 10 adoption, essential for the company growth strategy, has been a success as has related progress made, most recently, in Bing and Office 365.
Microsoft continued to move on with its hardware push as well, with a flagship company store opened in New York City in late 2015.
Further, Microsoft is one of the financially strong companies that took advantage of record-low interest rates. In 2015, the company issued a record volume of debt and accessed the debt markets not just once but twice, borrowing $23.75 billion at very favorable rates.
The company may use some proceeds to repurchase its own stock; additional share buybacks would help boost per-share earnings growth.
Of course, companies shouldn't rely on share buybacks for their growth and we expect Microsoft to generate rising profits from its operations as well.
And while the shares of Microsoft aren't cheap, they aren't very expensive either, especially after subtracting all the cash the company has accumulated. Further dividend increases are not out of the question.
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