Microsoft is a sleepy stock pick, to be sure. Shares have gone nowhere for about 10 years, and lots of investors think this tech stock’s best days are behind it.
But Microsoft has started 2012 with a bang — and there are many reasons to expect this pick to be a great long-term play.
A look at some great technical analysis from Greg Harmon of Dragonfly Capital estimates a run in the stock’s price to $58 to $67 in the next five or six years. That’s a doubler from here, with 13% annual returns!
Don’t believe the charts? Well, consider the analysis of James Altucher as part of our 10 Best Stocks for 2012 feature:
- Back out the cash, and MSFT has a forward P/E of less than 10.
- Microsoft is the king of buybacks, with a $40 billion plan to boost earnings per share.
- It boasts more than $30 billion in cash in the bank, and predictable revenue from enterprise software sales.
That stability is very attractive and signals Microsoft could be a big bargain after a long period of underperformance. There are already hints MSFT stock is breaking out after a 24% surge to start 2012. I’m a little leery of a short-term pullback, but I believe the long-term potential is definitely there for this tech giant.
That’s because there are also glimmers of — dare I say it — growth for Microsoft. The Kinect controller for Xbox caught fire, and Microsoft’s Entertainment & Devices division is steadily becoming a bigger part of the bottom line even though it significantly lags legacy businesses.
And if you want to be pie in the sky, consider the mammoth potential of Microsoft’s $8.5 billion buyout of the video conferencing and VoIP company Skype. This could easily be a big play into the enterprise space, integrating video conferencing to MS Office as a way to adapt to the 21st century business environment, but it could also be a way to get a foothold into the booming smartphone market.
Imagine if all those iPhones and Android devices allowed Skype calls. Instantly, you have made any mobile device a “telephone,” and created a huge potential customer base.
Just a daydream? Maybe. But even if you don’t want to bank on Microsoft’s innovation, bank on its bulletproof balance sheet and bargain valuation.