Microsoft Corp (MSFT)

This blue-chip stuff that you want to invest in, in the Tech sector. They are going to connect in market services with Amazon (AMZN-Q). A great balance sheet with tons of cash. Trading at around 18X 2019 earnings. Thinks it still has another 20%-30% to go. Dividend yield of 2.3%. (Analysts’ price target is $75.)

This has been a remarkable story. It was a business that wasn’t doing much, but all of a sudden they pivoted, and are now competing on the infrastructure side with Amazon (AMZN-Q) on networking and Cloud computing sides. That is now a very good chunk of the business and is driving growth which gives investors interested giving a re-rating of the valuation.

This has been on a valuation ladder. For a lot of years it was the darling as a high, high growth company, and deservedly so with a very high multiple. Then it went out of favour and earnings didn’t grow as fast, and it went down the ladder on valuation, to what would now be described as old tech, trading in a low teen multiple. It is now back up the ladder, but in anticipation of new things happening. Some of those new things are happening, but haven’t shown up yet on the income statement. We are really not seeing earnings growth, the way you would expect for a company trading at the multiple it is trading at. He would step aside on this.

Feels their earnings were a little soft. The whole buzzword is the Cloud. This company clearly has their game back, and he would be very happy to continue owning if you have it.

This has been a great company ever since they threw Steve Bulmer out. The problem is that it is so large. It is hard to imagine them doubling in size over the next 5 years, and he always hopes for his stocks to double in the next 5 years. However, he does own a lot of this. They pay a dividend and have a nice free cash flow yield. They are in the right areas of technology. You are going to make money with this, but you are not going to get rich.

(A Top Pick Feb 2/16. Up 25.38%.) A nice performer. One of those great tech companies that is sticking with what is working and evolving with technology. They and Amazon (AMZN-Q) are neck and neck for Web services now. Amazon has the early lead in that business, but this company is better positioned to potentially become the longer-term winner because of their historic legacy relationships with businesses. 10% of their market cap is in cash. They pay a nice dividend and buy back a lot of shares. Thinks it is going higher.

MSFT-Q vs. IBM-N. If she had to choose, her preference would be MSFT-Q because of their cloud business which will grow. IBM has not been able to figure out how to grow their top line. Both have cash overseas and will benefit if there is repatriation of cash policy changes.

They did a god job of moving away from traditional software and into the cloud. Watch fundamentals and not price. It is a big ship. Cloud is still only about 10% of their business. Their earnings are fairly flat and valuation is where it was about 10 years ago. 2.4% yield.

They have done a phenomenal job. We had a nice multiple re-rates on the stock. With regards to Tweets regarding this stock, it creates volatility and buying opportunities.

(A Top Pick Jan 19/16. Up 28.53%.) He thinks that this is just beginning. When you see the NASDAQ 100 making an new all-time high, the year 2000 highs were just taken out. Many companies in the NASDAQ 100 are generating a boatload of cash, with very strong dividend growth. Thinks this will be the destination for “dividend hunters” money.

The tech group led the market all year long. Cloud-based computing is growing like wild fire. In the most recent quarter, they grew their Azure business by 120%. Software, as a service, is very attractive because it is very predictable. In the 1^st few days and couple of weeks after the election, people sold some of the leading technology companies in order to buy stuff they didn’t own. Now there is new money coming into the market, and these companies have not changed their business models. This company is not expensive. It has recently taken out the highs from 2000. Their last purchase of LinkedIn gives them a great opportunity to monetize that business. Dividend yield of 2.47%. (Analysts’ price target is $63.75.)

(A Top Pick Dec 7/15. Up 10.85%.) If he didn’t own a position, he would be buying this today. This company has gone through a bit of Renaissance. It was a tech leader of the 90s, then turned into yesterday’s old technology, but in the last 2 years has had a Renaissance. People now realize that they and Amazon (AMZN-Q) are the global leaders in Web services. This company has certain strategic advantages that could put them in the lead at some point in the future. A great, great generator of free cash flow. Pays a 2.5% dividend, and they buy back shares. Has $63 billion of cash on the balance sheet.

Thinks the new CEO has done a very, very good job of taking a bit of a broken story and resurrecting it. The stock is showing confidence building. The premium has built into the stock, so the valuation has increased and people are paying more and more for every $1 of earnings. However, looking at the fundamentals, this is a very, very large ship that is tough to turn. While they are making great headway in the Cloud and getting a lot of accolades about their Cloud offering, in terms of revenue and earnings growth, it is just not that impactful. He would wait to see how this impacts the company, and pay perhaps a slightly greater price for much greater certainty.

After languishing for well over a decade, they changed CEO and changed their strategy to push into cloud, but AMZN-Q was there first so MSFT-Q was playing catch up. He thinks they are doing a very good job. It is not as good of a time as it was to get in, because the stock has done really well. They are close to a 20 multiple and he does not know if the new business is positioned well enough to capture more share of the market.

He likes this for the Cloud. The runway/opportunity for their Cloud business is just massive. The total addressable market could be up $1 trillion, and this is just getting started. There are probably more acquisitions to come in the future. Dividend yield of 2.63%.