First, the Redmond, Wash.-based technology giant appears to be cheap. It is valued at 12 times projected profits of $2.05 a share for the current fiscal year and is currently trading at about 11 times projected profits of $2.28 a share for its 2011 fiscal year and a little more than 10 times estimated calendar 2011 earnings.
Secondly, Microsoft has an extremely solid balance sheet sitting on net cash and short-term investments of $34 billion, which enables the company to expand into new businesses and focus on innovation with relative ease.
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Thirdly, an upward trend in demand for computers will likely provide positive support for Microsoft. Businesses are starting to upgrade IT infrastructure, which includes upgrading operating systems, and consumers around the globe are increasing their desire to seek personal computers. This will benefit Microsoft because nearly nine in every 10 computers operate on a Windows operating system.
Lastly, Microsoft's massive investment in the Internet business appears to be paying off. The company's Bing search engine has drawn significant appeal and continues to gobble up market share from its rivals. In fact, at the end of May, Bing's piece of the search engine pie rose to nearly 12.1%.
Despite showing many signs of prosperity, it is equally important to consider the inherent risks involved with investing in Microsoft. Microsoft closed at $25.66 on Friday and according to the latest data at
, has a price point of $23.98.
Written by Kevin Grewal in Houston.
At the time of publication, Grewal had no positions in the stock mentioned
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Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.