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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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!
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I retired at 65 with $7.8 million and feel like I over-saved. My 40-something son is on the same path. Should I tell him to reconsider?We ask financial experts for advice.
-
Dow Beats 334-Point Retreat on Tech Bite: Stock Market TodayInvestors, traders and speculators wonder whether this remains a Magnificent 7 market and how long this AI-driven bull run will last.
-
S&P 500 Sees New Highs on Shutdown Day: Stock Market TodayMost of its components were in the red, but the S&P 500 Index still managed to hit a new intraday all-time high.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
Dow Rips 846 Points to New All-Time High: Stock Market TodayFed Chair Jerome Powell seems ready to cut interest rates in the fall but will still rely on incoming economic data about inflation and employment.
