Software Giant Microsoft (MSFT) Is On Sale

I love a bargain, whether it is in a supermarket or the stock market, especially when a fundamentally strong global brand with monopolistic like qualities, is oversold based on both fundamental and technical criteria’s.

An opportunity exists today to purchase stock of a leading global giant of personal and business software, hardware and cloud services, Microsoft (MSFT).

The following is what makes me want to add Microsoft to my long-term portfolio over the coming days. I already hold a small position in Microsoft.

Please note, I am both a long-term deep value investor as well as a medium-term trader who utilizes the combination of both fundamental, technical and macro analysis to form a view of every investment I make. Doing so I believe leads to low risk and superior market beating returns over the long run.

Fundamental Factors;

The Bad

Recent 9% drop in sales revenues to $64.71B and 11% drop in net income to $13.68B for the nine months ending 31st March 2016 due to unfavourable market conditions.

The Good

Valuation of $50-$60 (approx.), so MSFT is within fair value after the recent price drop.

Earnings per share (EPS) have been good for the past 5 years and is forecast to increase.

Return on Equity (ROE) of over 26% is excellent and forecast to improve.

Long-term cash flow relative to reported profits is strong.

And Microsoft has a long term funding surplus.

MSFT_2016-04-27_10-38-12.jpg

 

Technical Factors;

The Bad

Clearly broken the $55 key price support level.

Currently below both 20 and 50 day moving averages.

Bordering on the confirmed up trend line.

The Good

Currently still above the 200 day moving average.

The stock is oversold on a variety of momentum indicators and buying volume is above average over the past week.

It is likely that value seeking fund managers like myself will come in to take advantage of these lower prices.

Other Factors

For longer-term investments, I generally like to see who else is on-board with me and where the smart money has found its home.

In my opinion, actions always speak louder than words. Microsoft is one of the most widely held stocks by smart money.

SEC filings report the following world-renowned deep value investors holding significant stakes.

Steve Madel – 6.46% of portfolio managed
Donald Yacktman – 5.43% of portfolio managed
Ronald Muhlenkamp – 4.81% of portfolio managed
First Eagle Investment – 4.16% of portfolio managed
Dodge and Cox – 3.62%% of portfolio managed

Conclusion

The recent 10% price fall in Microsoft has brought the stock back to fair value for a fundamentally strong company with monopolistic characteristics and wide smart money support.

Although there is a high probability Microsoft will likely drop a little more before it’s price stabilizes, I will be personally adding more Microsoft into our long-term portfolio over the next few days when volume for Microsoft stock picks up and there is a price reversal to confirm demand.

To see how you can easily identify undervalued leading stocks like Microsoft, click here.

 

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