Stock (Symbol) |
Microsoft (MSFT) |
Stock Price |
$73 |
Sector |
| Technology |
Data is as of |
| August 8, 2017 |
Expected to Report |
| Oct 30 |
Company Description |
 Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. Source: Thomson Financial |
Sharek’s Take |
 Microsoft (MSFT) is up around 25% during the last year, and with profits set to decline 3% this fiscal year, perhaps the stock is due for a breather. Microsoft has a lot of growth avenues including cloud storage, Office 365 (which allows people to login from anywhere to view files and emails) and the Xbox video game franchise. Video games are becoming 3D and lifelike — there’s huge growth opportunity here. Microsoft has three main divisions (below), each around 1/3rd of sales. Here’s the breakdown of last qtr’s sales growth by division:
Microsoft’s fiscal year-end is June 30h, so the company just ended fiscal year 2017 — with 5% revenue growth and 19% profit growth. MSFT along with Johnson & Johnson are the two safest stocks in the world. The high level of stock safety, big stock buybacks and fat dividend yield make it so MSFT deserves a P/E much higher than its growth rate (Est. LTG) of 10% per year. My Fair Value is 20x earnings. Profits are expected to decline 3% in fiscal 2018 due to new accounting standards being adopted by the company, but I feel MSFT will beat the street and deliver high single-digit profit growth for the year. Still, with a P/E of 23 the stock is higher than my Fair Value of $64 a share. I would take profits in MSFT if it was a top-ten position in my Conservative Growth Portfolio. But the stock isn’t a large position thus I will hold what I have. Microsoft has a good growth story, and its an excellent choice for conservative investors who want or need technology in their portfolios. |
One Year Chart |
 Wow, what a stock chart. No corrections so there was no reason to take profits this year (technically speaking). So if we do get a 10% correction, that might turn into a 15% to 20% pullback. 2018 expected to decline is a real bummer, especially since LinkedIn was acquired in December 2016 and is now boosting profits. Qtrly profit Estimates are 0%, 4%, 7% and -16%, but this last figure is being compared to the great qtr MSFT just delivered so expect this figure to climb in the coming months. The Est. LTG just increased from 9% per year to 10%. With a nice fat yield of 2% that’s an estimated total return of 12% per year. |
Fair Value |
 Microsoft accounts for stock options as an expense, thus its Fair Value P/E should be richer due to this. The company also gets a AAA rating, thus a should earn a premium P/E from that as well. I feel a P/E of 20 is appropriate, and I think the stock could simmer down as well. |
Bottom Line |
 Microsoft stock has successfully transformed itself from a company depending on PC sales into one with multiple revenue streams in growing areas including cloud computing, video games, tablets, and social media (LinkedIn). But I feel the recent rise in the stock is partially attributed to investors climbing aboard S&P 500 index funds — which mainly invest in large stocks in the S&P 500. I really think the stock needs to go back-and-forth for a year. MSFT ranks 26th of 31 stocks in the Conservative Stock Portfolio Power Rankings as it doesn’t seem to have much upside after last year’s run-up. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 26 of 31 |
