Mr. Softy May Be a Bargain

NEW YORK (TheStreet) -- Microsoft (MSFT) has been a favorite not only with Wall Street brokerage firms but also with TheStreet readers, who give the stock an A rating.

The stock is hitting on all four cylinders and recently reported solid gains in all four of its divisions. The recent softness in the market may be signaling an entry point for those who don't own Mr. Softy or those who would like to add to their holdings.

If you consider this hourly trading chart provided by Barchart for the last month, you can see that after the company reported solid earnings there was a nice jump. But the stock has also fallen with the rest of the market in the past week:

Over the last six months this stock has seemed to follow the market as measured by the Value Line Index:

I think this might be a good entry point to buy a better-than-average stock at a below-average price, and I'll explain why.

Microsoft 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. The company was founded in 1975 and is based in Redmond, Washington.(Yahoo Finance profile)

Factors to Consider:

Barchart technical indicators:
  • Negative short-term indicators on a stock with solid fundmentals can signal a good accumulation point
  • 40% Barchart technical sell signal
  • Trend Spotter hold signal
  • Trading lower than its 20-, 50- and 100-day moving averages
  • Lost 5.81% from its high this month and is 11.24% off its previous one-year high
  • Relative Strength Index 44.06%
  • Recently traded at 29.21, which is below its 50-day moving average of 29.76
  • Fundamental factors:
  • Widely followed on Wall Street where 31 brokerage firms have assigned 36 analysts to monitor the stock's numbers
  • Analysts project revenue will increase by 9% this year and another 6.8% next year
  • Earnings are estimated to increase by 11% this year, an additional 10.2% next year and continue to increase by an annual rate of 8.95% over the next five years
  • These consensus number resulted in 14 strong buy, 11 buy, 10 hold and a single sell recommendation currently in place
  • Analysts project if these numbers hold, investors could see an annual total rate of return in the neighborhood of 15% to 19% over the next five years
  • The P/E ratio of 10.99 is below the market P/E of 14.60
  • The dividend rate of 2.61% is only 1/3 of estimated earnings and above the market's dividend rate of 2.40%
  • The stock has an A++ financial rating
  • New products are to be released in all four divisions, keeping the product mix fresh
  • Windows 8 is expected to be released in the Fall
  • XBox continues to be a market leader in entertainment consoles
  • New Windows-enabled smartphones are drawing huge interest for content providers
  • Investor Interest:
  • With 97% of the analysts following the stock giving it a hold or better recommendation, Wall Street is behind the stock
  • TheStreet readers give the stock an A rating
  • Both Jim Cramer and Jim Jubak have given positive comments about the company's future
  • As always, I look to the market to signal the sector leaders and over the past year Microsoft was up 4%, while Oracle ( ORCL) was down 8%, SAP ( SAP) was down 7% and VMWare ( VMW) down 16%:

    Oracle
  • TheStreet rating of A-
  • Revenue projected to be up 4.6% this year and another 6.8% next year
  • Earnings estimated to increase by 8.1% this year and 9.8% next year
  • SAP
  • TheStreet rating of B+
  • Revenue projected to be up 13.2% this year and another 10.8% next year
  • Earnings estimated to increase by 11.7% this year and 13.6% next year
  • VMWare
  • TheStreet rating of A-
  • Revenue projected to be up 21.7% this year and another 18.7% next year
  • Earnings estimated to increase 24.4% this year and 16.3% next year
  • Summary: Although Microsoft is not projected to increase its revenue by double-digit numbers, earnings increases over the next two years are expected to be double-digit as well as total annual return.

    Conservative investors should consider that we have an opportunity to buy an above-average stock and a below-average P/E point. Watch the moving averages and 14-day turtle channels to determine your entry point is you decide to jump in:

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