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Windows 9 Could be a turning point for Microsoft

Stocks in this article: AMD HPQ INTC MSFT

By Chris Lau for Kapitall.

Microsoft ( MSFT)’s failure to convert post-XP versions of Windows into sales growth has weight on its stock. Though Microsoft shares are holding above $40, there may be room for upward movement. The catalyst may very well be the release of Windows 9.

Start button returns

Microsoft pushed the Metro interface to users too soon. Instead of encouraging users to upgrade from Windows 7, Windows 8 removed the popular Start button and made the metro interface the default start screen for all users. When Windows 9 is released, the OS might be aware of the hardware that the system is installed on. For PC desktop users, the Start Menu will be enabled by default.

At its build developer conference (which took place earlier this year), Microsoft demonstrated a more appropriate display of Metro apps on the desktop. Instead of displaying full screen, apps float on the desktop. This would drive more metro-based sales for Microsoft from desktop users. Since the app interface would be in a format more appropriate for the desktop, users would be more willing to install and buy metro apps at the Microsoft app store.

Valuation

Even with Microsoft shares up 23% in the last year, its shares are still inexpensive. They trade at a forward P/E of just 15. Hewlett Packard ( HPQ) is another undervalued hardware supplier. Its forward P/E is 9. It would benefit from stronger computer sales following the release of Windows 9.

Investors holding Microsoft get a dividend that yields 2.68%. HP’s dividend yields 1.88%.

In the chip sector, Intel ( INTC) would benefit greatly from higher demand for PCs. So would Advanced Micro Devices ( AMD), though to a lesser degree. AMD is in the midst of transitioning its revenue stream so that it is not so dependent on PC sales.

Disclosure: Author has a long position in shares of AMD.

Do you think Microsoft 9 will be a comeback product? Or are PCs a 20th century relic? Use the links below to start your own research.

Click on the interactive chart to view data over time. 

 

1. Advanced Micro Devices, Inc. ( AMD, Earnings, Analysts, Financials): Operates as a semiconductor company in the United States, Japan, China, and Europe. Market cap at $2.82B, most recent closing price at $3.71.

 

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