Microsoft Corp (MSFT)

This company came from a monopoly position and is now trying to move into new markets. Has a ton of cash. Feels it has to reinvent itself and to figure out whether it is going to be a growth company or is going to be a slow and steady dividend aristocrat type, which pays dividends and buys back shares regularly. Doesn’t think this is a long-term secular growth story. He would stay away.

The model price is $51, a 36% upside. Tremendous upside.

(A Top Pick Dec 3/12. Up 46.56%.) Valuation has caught up to the earnings. PE multiple expanded because it is a utility business. It was trading at a depressed value because people thought it was going out of business. Earnings are growing and they are buying back stock.

Has been a great investment. There is strategic value within the company. Reported a fantastic quarter. Thinks the company will try to figure out how to return some cash to shareholders, which will include increasing dividends and buying back stock. Strategically they are going in the right direction by migrating their business from a licensed model to software, service and devices model. If you can get through the lumpiness, it should be pretty stable.

Cheap stock. Has a great yield and great products. Great products for the enterprise business. Not expensive. Their businesses generate lots of free cash flow.

A big believer that the large-cap technology companies essentially reinvent themselves to become more shareholder friendly. They generate a lot of money, so they are more than willing to buy back stock and to increase the dividend. If you own for the dividend, this is very safe. This needs to break out of that range where it is no longer just a stable bricks and mortar technology company but go back to the days when it was a higher growth. The Windows operating system is the biggest franchise and they put their cash from that into things like Xbox, Bing and their service and tools business. If they can keep those parts moving and growing, the valuation will continue to move higher putting the stock somewhere up in the $40 range.

Has done exceptionally well in recent months. Very healthy yield of about 3%. There are a few opportunities here, but most of them have started to reflect themselves inside the share price. The gaming console was once a small component part of their business but is now becoming a major part. There is also a new console expected in the next couple of weeks. There is still a wide runway for the commercial adoption of Windows 8.

Have some great businesses for the enterprise which continues to grow and throw off lots of cash. Will be getting a new CEO, which he thinks is important for the company. Great yield of 3.3%.

This is one of those charts that is not easy to read. Traditional technical analysis would say that there would be support at old resistance, which it more or less did at around $30. However, the last part of this year has shown a series of lower highs but definitely finding support at around $30. This is not going to be an easy trade off of the charts. You really have to believe in the fundamentals of the company. In the short term, it is a Trade, but any time it gets around $31, it is a screaming Buy.

Once a company starts to pay out a dividend, the growth of the company is pretty much over.

Have a dividend of $0.28 per share, which is 3X what it was 3 years ago. They have $75 million in cash and have announced a bunch of buybacks but he doesn’t think that’s what they should be doing with the money. They should get rid of the Bing search engine, which is not working and costing a lot of money. They should also raise their dividend. If you want a greater return, he would look elsewhere. He is not the least bit interested in this name.

Had a pretty good quarter a couple of quarters ago and people got excited. That fizzled last quarter. Thinks market will have a wait and see approach.

Had a tremendous run up, 25%+ year to date. Likes that they are giving money back to shareholders in the form of dividends. Put the dividend up 22% and are buying back stock which he thinks they should be doing. Looking out over several years, they generate a significant amount of cash flow, which can be reinvested into things like Xbox, servers and tools, online gaming franchise and they can broaden out their offering. If it got back down to the $30 range, he would be interested in it.

Fairly non-cyclical. You will always get good pockets of growth. But this one is stagnant. Nokia was not a good idea. He is concerned with the 10s of thousands of employees they just picked up. They are challenged and it is well known they are. Sees a low level of growth. 3% dividend. Be prepared to hold it for 3 years after the new CEO turns things around.

Had a succession of problems and a stiff breeze in their face. They failed on a variety of new innovations, such as tablet, phone, PCs. Not a growth area.