Microsoft Stock (MSFT): Bigger Gains to Come in 2016

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It took some doing, but I finally got Microsoft (MSFT) Windows 10 installed on all four of my computers. My MSFT Surface tablet actually came with Windows 10 pre-installed, but my laptop and two office desktops were all Windows 8.1 machines.

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It took the better part of an entire afternoon to get Windows 10 downloaded and installed on four machines, but it was worth it. For me, personally, it marked the end of the Ballmer era. Somehow, even typing out this article on a Windows 10 computer feels more satisfying post-upgrade.

Apparently, I’m not alone, either. Earlier this month, MSFT announced that over 200 million devices are now running Windows 10. And remember, the Windows 10 operating system has only been in existence since July of last year, and its rollout has been “soft,” coming in stages based on your device.

The strong performance of Windows 10 is a testament to two things. First, it shows how truly unpopular Windows 8 was (and still is). But it also shows that, despite the decline of the PC as a platform, MSFT is very much alive and well. Microsoft stock has performed exceptionally well since Satya Nadella took over as CEO

Microsoft Stock Is Surviving the PC Decline

The macro story continues to be ugly for PCs. According to IDC, PC shipments dropped last quarter to levels not seen since 2007. Sales were about 10% lower year over year. That’s truly horrendous, but it speaks volumes about how Microsoft has become much more than a vendor of PC operating systems.

MSFT, along with Alphabet (GOOGL, GOOG) and Amazon (AMZN), is emerging as a leading competitor in the enterprise cloud space, and the performance of Microsoft stock speaks volumes about this transition.

In a rough year in which most stocks lost money, Microsoft stock has been a rare gem. The stock is up about 25% since the end of the first quarter of 2015. Analysts are revising their estimates for Microsoft stock; Morgan Stanley sees the price rising to $66 per share, and I consider that a very reasonable estimate.

Most of the focus for MSFT has centered around its cloud business, which is understandable. But, the cloud isn’t the only story here. After wasting the potential of voice and messaging system Skype during the Ballmer years, Microsoft is finally making the push I’ve long expected with Skype for Business.

More specifically, MSFT recently announced that it bought Event Zero, which makes software that allows company IT departments to better manage Skype for an enterprise. Already, Skype accounts for one-third of the world’s long-distance calls. Expect that number to go a lot higher.

So, is Microsoft stock a buy at today’s prices?

Absolutely. The market is off to a lousy start this year due to high valuations, growth concerns, and the never-ending macro concerns surrounding the price of oil and the stability of China. Yet, MSFT trades at just 16 times this year’s expected earnings, and as a software company it’s about as far away from crude oil as you can get.

Charles Sizemore is the principal of Sizemore Capital. At the time of this writing, he was long MSFT.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/01/microsoft-stock-msft-bigger-gains-come-2016/.

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