Microsoft Revival Hopes Ride on Windows 8
The new operating system holds promise for the tablet market

You might think the case for throwing in the towel on Microsoft (symbol MSFT) is all but sealed. The one-time leader of the personal-computer age has struggled to keep up with more-innovative rivals in recent years. It failed in its bid to acquire Yahoo; continues to lose money on its search engine, Bing; and never seems to be able to cash in on the shift to mobile computing. Microsoft’s stock has been a value trap for investors -- what might have looked like a bargain has kept getting cheaper and cheaper.
SEE ALSO: Low-Priced Stocks with Upside
But Windows 8 could change all that. Microsoft's recent release of the revamped operating system has shown that it has a creative plan for thriving in the new world of mobile and cloud computing. And with the stock ($27 as of November 30) still reflecting a highly bearish scenario for the world's largest software maker, it could be just the right time to get in.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Microsoft is embracing change. In addition to a PC version of Windows 8, the company released compelling adaptations for smart phones and tablet computers. The sleeker operating system should attract more users -- both consumer and corporate -- to Microsoft-fitted mobile devices, an arena in which the company hasn't yet made much headway. And it means that consumers will be able to more seamlessly run similar apps and sync media among their different devices. Windows 8 also includes SkyDrive, Microsoft's cloud-computing service, which allows users to save projects and data online easily and access them from anywhere.
The new operating system could gain a particularly strong following in the tablet market. Although iPads and Android-powered devices are great for reading books, watching movies and surfing the Web, the tablet version of Windows 8 is better suited for work -- with Office applications, such as Word and Excel, revamped for a touch-screen format. The market for tablets is expected to triple between now and 2015. Mark Moerdler, an analyst for Sanford Bernstein, believes Windows will overtake Android to become the number-two operating system for tablets by 2014.
Microsoft's newly introduced Surface tablet has already received strong reviews and a plug from Oprah Winfrey. And in a seeming nod to its resurging competitiveness against Apple, Microsoft has been expanding its brick-and-mortar presence -- opening almost 30 retail stores in the past three years.
For investors, though, the stock has been such a dog that it's hard to imagine Microsoft's fate ever changing. The Redmond, Wash., company's earnings have grown at an annual clip of 9% over the past decade. Over the same period, the stock returned a paltry 2% annualized, including dividends.
But the stock may finally be so cheap that it can't get any cheaper. It now trades for a bit more than 8 times the $3.19 per share that analysts expect Microsoft to earn in calendar 2013. If you subtract the firm's cash hoard -- after accounting for debt -- of $54 billion ($6 per share) from the share price, Microsoft trades for just 6 times projected profits. "The risk is still there -- there's no question that Microsoft has to transition out of the PC era into something new," says analyst Michael Turits, of Raymond James. "But what's not priced into the stock is the possibility that it succeeds." Turits sees the stock reaching $34 in a year. If he's right, Microsoft may again be seen as a leader rather than a laggard.
Kiplinger's Investing for Income will help you maximize your cash yield under any economic conditions. Subscribe now!
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Aging: The Overlooked Risk Factor
Sponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?
AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?
AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
Stock Market Today: Stocks Struggle to Sustain Gains
Mixed messages from multiple sources continue to make for a messy market for investors, traders and speculators.
-
Stock Market Today: Stocks Stable as Inflation, Tariff Fears Ebb
Constructive trade war talks and improving consumer expectations are a healthy combination for financial markets.
-
A Case Study in Mismatched Fund Returns
Stock Market Why do a fund's returns sometimes differ from its underlying index? A longstanding legal principle holds the key.
-
My Three-Day Rule for Investing: And If it Applies Now
Stock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?
Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Stock Market Today: Investors Weigh Weekend Negotiations
Investors, traders and speculators will look to Switzerland for answers about the most compelling issue confronting global markets.
-
Stock Market Today: Dow, S&P 500 Extend Win Streaks to 8
Strong earnings results for Magnificent 7 stocks Microsoft and Meta fueled upside in the equities market.