Microsoft Corporation (NASDAQ:MSFT) — Microsoft is the world’s largest software maker and developer. Its achievements include the world’s most accepted operating system, Windows, and the most accepted application suite, Office.
In June, the company announced the largest acquisition in its history, LinkedIn, for $26.2 billion. Gross margins were 69% in fiscal year 2014 (June), 65% in FY 2015, 62% in FY 2016, and are expected to “plateau” in FY 2017.
MSFT stock, and other U.S. IT firms, could benefit from President–elect Donald Trump’s plan to allow the “repatriation of corporate profits held offshore at a one-time tax rate of 10%.” This could provide stockholders with additional stock buybacks and dividend payouts. But it could also have a negative impact on trade, in which the IT sector is a major participant.
However, strong cloud opportunities and a stream of resulting income from cloud-based software could result in Standard & Poor’s forecast being much too conservative.
S&P’s median forward P/E of 22X is average for this stock, according to analysts. However, when a stock reacts positively to negative developments, then its price is telling us something about future earnings that has eluded analysts. Such is the technical situation with Microsoft stock.
Following an advance to August’s high, MSFT consolidated until an impressive, high-volume break-away-gap propelled the stock to all-time high at over $61. The break was supported by the 50-day moving average (blue line), which survived a test in mid-November. The stock jumped from a second test of the blue line early in December, which led to a break of a triple top at $62, and another new high.
Buy MSFT at $62 or lower with a four-month trading target of $70 for a proposed return of about 13%.
