Microsoft Corp (MSFT)

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%.

Closed down in the after hours. Ballmer really blew it by buying Nokia. You can’t compete against Apple (AAPL-Q) in the phone. They tried and they blew their brains out. The warning was telegraphed, so the market shouldn’t be surprised by this. This company has a perfect balance sheet with about $10 net in cash and the margins are growing. A company he wants to own and he can see it continuing to do wonderful things over time. Very cheap.

One of the older legacy technology names. People got excited when Nadella came on board and brought some hope. Recently they took a massive write down for one of the last deals that Steve Ballmer pushed through. Its core desktop and laptop businesses are slowly in decline. Probably a stable industry, but probably no growth. Doesn’t really have a mobile strategy. They have a good Cloud strategy. He would prefer Apple (AAPL-Q).

New management is doing such a better job than prior management and is starting to resurrect the value of some of their assets. They own the operating system for 90% of the PCs globally, and will continue to do that. Also, becoming a better play on the Cloud as well. You are getting all of this for a 16 or 17 multiple. They have a massive cash balance that they can use for further acquisitions.

(Top Pick May 26/14, Up 21.05%) iCloud had already started rolling out. He is hoping to hold for another year. They have lots of cash and are doing lots of stock buybacks.

Very interesting. In the early part of its existence it had a very fast growing balance sheet, which has slowed down quite a bit. It is now trapped between one of its support points and its FMV. The FMV is falling slightly, while the technicals are rising and the company is getting squeezed. Growth is slowing and not necessarily leading edge anymore. It may be about to take another step down.

(A Top Pick April 2/14. Up 5.5%.) This was a foray into technology and he still has a small position in this space, but has broadened his way out into a lot of security oriented software.

They still get almost half of their revenues from Windows and Office, and that is a business that he thinks will continue to be challenged longer-term. Doesn’t think this is a company that you need to own at these price levels. Cloud computing is a very competitive space. (See Top Picks.)