Microsoft Corp (MSFT)

One of the world’s largest software companies and now an emerging global leader in Web services. Trading at 17X earnings. $7 a share in cash on the balance sheet. Dividend yield of 2.72%.

They have increased their dividend nicely over the years. They are reporting their numbers tomorrow afternoon.

Investors are looking for the cloud to be the savior as the PC market is a failing market. But the Cloud has not contributed meaningfully to their revenue. He shies away from it because the stock price reflects success with the cloud, which is highly competitive.

This topped out in 2000, and only recently made a new high going back over the last 15 years. They have their dominant operating system for PCs. Microsoft Azure is a cloud-based enterprise business, and grew 100% for them last year. They are now selling their desktop software as a subscription service, making it a much more predictable business. 3% dividend yield.

(A Top Pick Nov 27/14. Up 19.36%.) Feels this is a changed company because of the new CEO. They have some great products. Throws off lots of free cash. A good story. Thinks it has upside to around $65.

He is finally seeing this getting closer to his model price, which is how he calculates Fair Market Value. His model price is $58.65, a 5% upside. Thinks it has enough momentum to get to $59.50. (See Top Picks.)

A great company that generates a ton of free cash flow, pays a nice yield, increases the dividend over time and has a great balance sheet. They buy back stock also. He likes their online strategy.

Took profits on this a while ago. The stock has done quite nicely, but his issue is that it is a bit expensive in terms of valuation. Trading at around 20X forward earnings with a 10% growth rate. That gives it a 2X PEG ratio. There are several technology names out there that are trading at a better PEG ratio. It gives you a pretty decent dividend at 2.66% yield, but there are other tech names he finds more attractive.

His number 2 position. He classifies it as low tech, but it has everything you want in this market. Wait for a pullback to $38/$39, which it will. He is sure it will pull back to this level. His model is $57.45. He will be taking a lot of profits off his APPL-Q holding at the end of the month.

They have owned the desk top for a long time. Over 90% of businesses still use Windows. MSFT-Q is morphing its business to annual fees and subscriptions. There is plenty of room for dividend growth. They fumbled on some acquisitions in the past, overpaying for some things, but they are a dominant player globally.

This is an outstanding company. It has seen continuous multiple compression since 2000 and now it has gone too far. Almost 10% free cash flow yield. 14 times earnings. They have become a leader in web services. It is undervalued for what they have and the company is going places.

Trading at a discount. His model prices $53.13, a 21% upside. In very volatile times, you are not going to lose your shirt.

Gives you a pretty good attractive dividend yield and has a reasonable valuation when you strip the cash off the balance sheet. They are doing a good job of transitioning from a license-based model to a service-based model. Thinks there is really good momentum behind the name. Dividend yield of 2.83%.

They have done such a good job with their Windows suite really being everywhere. The margins are great. Over time they have built up so much cash so there are a lot of compelling parts to this company. It is a bit tough to call where it is going to go.

Recent earnings were not ideal and they really haven’t grown them over the last several years, so it is kind of a call on the new CEO righting the ship and refocusing away from their forays into other companies. They are focused more on what the world is going to look like going forward with Cloud Services, Office 365 and Windows 10 coming out. There is a refocus on what they are good at and a good vision of what the future’s going to hold. You could see multiple expansion if the earning start to grow. If you add that to some earnings growth, a couple of years out this will be a decent return. Dividend yield of 2.69%.