Microsoft Corp (MSFT)

Had a great run. When he bought it, it was on a free cash flow yield basis of about 12%. Now it sits with a 5%-6% free cash flow yield. Their Cloud-based business has exploded upwards. Office Suite 65 has done incredibly well. The only issue is valuation. It used to trade at 10X earnings, but now trades at 25X. If you take out the cash, it is more like 15X. Thinks there is more upside, but he is cautious. He is going to look at this in the next couple of weeks as to what he is going to do with reallocating.

He likes this. A very well-run business. In the past number of years, it has been undergoing a pretty meaningful transition, and now much more of the business has much higher quality revenue streams. In his opinion, deserving of a much higher multiple than the prior Microsoft. They’ve found discipline in terms of costs and capital allocation. He likes their underlying strength, diversification and how they are running it. It is no longer cheap, and would own more if it were cheaper.

It has very strong seasonality from mid-October until January. It is a bit early right now. Buy the whole position in around the middle of October.

(Top Pick Jun 23/16, Up 44.26%) He still likes it. 22 times forward earrings and a 10% growth rate. They are a major player in the cloud business with 28% of revenues from that. MS Office is doing quite well. It is getting a tad expensive, however.

Management has done a very, very good job of bringing the shine back. Their initiatives are obviously clear, and do close to 20% of their revenues in the Cloud. Their gaming offering is exciting. They are doing a good job, but when looking at the results, they are still spinning their wheels a little. This company goes up and down the valuation elevator. However, results are quite muted and they don’t change a lot, they grow incrementally. The expected changes haven’t happened yet, so you shouldn’t think that because the stock price has moved dramatically, that they have proven anything.

A good company. They’ve taken this from being a business where you would periodically buy an upgrade to your software. More and more people are buying licenses where they pay a certain amount per year, and are guaranteed access to the current version. That turns it into a kind of utility, resulting in you having to pay if you want to use your computer. Very heavily involved in Cloud, not as strong a position as Amazon (AMZN-Q), but probably the #2 position.

What has been working for this company is their Cloud services platform. Amazon (AMZN-Q) started in that space, targeting towards the start-ups and entrepreneurs, but Microsoft, with their huge relationships, have really done a good job, and that has been doing really, really well for them. If you aren’t in this, you may have missed the boat at this point.

He likes the Web services. This has had a good run over the last year, but thinks it is justified by the evolution of the company picking up LinkedIn. A real competitor to Amazon and Web services. Dividend yield of 2.1%. (Analysts’ price target is $82.00.)

Dividends have been growing well since they first initiated them about 10 years ago. In their last quarter, they were up 10% in constant currencies. Commercial Cloud annualized revenues run rate is now $18 billion, and the growth has them on track to meet their goal of $20 billion. A quality company, with a good platform in all the right areas. They should be able to dominate the Cloud space.

Starting to pull back due to the recent rotation of the techs. The chart shows it has done nothing but make new highs, higher highs and higher lows. It is getting a little pricey when you look at the metrics in terms of the PE relative to the growth rate, but for a decent dividend paying name in the Tech space, this is a name that people like to have. The Cloud space is doing very well for them and the software has begun to rebound. Watch the valuation. Flipping out of this, might be an opportunity.

This company went through a very, very strong growth period. It has run up the valuation ladder and then has come down. The fundamentals of revenue growth, cash flow growth and earnings growth have been steady and uninspiring over time. People now have faith in the new CEO and the Cloud, so it is going up the valuation ladder again. This is an OK buy here. A little bit expensive. He thinks there are lots of other technology companies to look at.

This is dominant for enterprise relationships. Of the 3 companies that are in Cloud-based computing, this is the one with all the corporate relationships. They are signing up long-term contracts with an enormous number of corporations. Their Cloud-based business has grown 93% in the last quarter. Their software services is growing nicely. Dividend yield of 2.2%. (Analysts’ price target is $77.)

There is a huge installed base of Windows systems globally, and this company has a 93% share of the desktop market. Also, they are making a transition to a Cloud company. They are selling services and all kinds of interesting stuff now. He is a big believer and a big fan of the company.

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.