Wednesday March 03, 2010
by Sy Harding, editor The Long and Short Stock Advisory
Microsoft (NASDAQ:
MSFT) handled the recent recession quite well, one of the most serious recessions since the 1930‟s, in which there were substantial declines in both consumer and business spending.
And this was in spite of the cool reception of its Vista operating system, which was intended to replace Windows XP. Overall, we consider the stock to be a potential "over-performer".
We believe Microsoft is now entering a cycle that will see revenue boosted by major new products, which combined with its cost-cutting efforts of the last few years, should result in significant improvement in recently sagging profit margins.
Windows 7, its new operating system, is experiencing heavy demand and getting very positive reviews. It will not only be replacing Vista, but will see significant demand from the many users of XP who put off upgrading to the unpopular Vista, waiting for Windows 7 to be available.
In June the company will be releasing its Office 2010 productivity suite of office programs, which for the first time will make 64-bit processing available (although only for Vista and Windows 7 operating systems).
It is also expected that a software upgrading cycle by corporations will begin in the second half of the year now that Windows 7 and its 64-bit processing is available.
The company is also moving ahead in other promising areas, including its recently announced teaming up with Yahoo, in which Yahoo‟s paid search engines will be transitioned to Microsoft‟s platform, with Yahoo becoming the exclusive sales force for both company‟s search products.
Microsoft‟s December quarter revenues were an all time record, while earnings of 74 cents a share were 57% higher than the same period last year, and resulted in Wall Street raising full year estimates to $2 a share.
Selling at 14 times estimated 2010 earnings, we believe Microsoft can be bought at present levels. We have an upside target of $36, and suggest a "mental‟ protective stop at $24.50.
Learn more about this financial newsletter at Sy Harding's The Long and Short Stock Advisory.
