It's an approach that may only work for as long as cloud computing doesn't become a commodity -- something I believe is happening right now. Rackspace Hosting (RAX) is another large player and the most significant stock price diver lately is the hope of a takeover by CenturyLink (CTL).

A Rackspace takeover is a sign of a maturing market -- a market space that may soon become commodity priced. You can bet IBM is watching the developments carefully. As I write this, Rackspace shares, at $3.75,  are getting crushed because confidence in a buyout is waning.

Microsoft's other gem is Xbox. Xbox enables Microsoft to remain in everyone's home even if they don't have a PC. The game platform is a leader and virtual earnings printing press.

The best way to analyze a company is through the numbers. Opinions on Windows OS's pending demise can cloud your judgment. The stock is trading at four times revenue and 15 times earnings, making the shares priced as if it will have little to no growth.

If the company does begin to spin its wheels and stagnate, there's a 2.7% dividend yield to earn while waiting for the shares to climb. That's really what it's about, the ability to buy value that others don't see.

At the time of publication the author had no position in any of the stocks mentioned.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

>>Why Apple Decided to Introduce New iPods

TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels, increase in stock price during the past year and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Although MSFT's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.01, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, MICROSOFT CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • MICROSOFT CORP's earnings per share declined by 5.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MICROSOFT CORP increased its bottom line by earning $2.60 versus $2.00 in the prior year. This year, the market expects an improvement in earnings ($2.70 versus $2.60).

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