Windows 9 Could be a turning point for Microsoft

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.

 

 

2. Hewlett-Packard Company ( HPQ, Earnings, Analysts, Financials): Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. Market cap at $57.06B, most recent closing price at $29.92.

 

 

3. Intel Corporation ( INTC, Earnings, Analysts, Financials): Engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. Market cap at $122.48B, most recent closing price at $24.63.

 

 

4. Microsoft Corporation ( MSFT, Earnings, Analysts, Financials): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $313.81B, most recent closing price at $37.69.

 

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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