What Does The Future Hold? $MSFT Is A Buy

Microsoft (MSFT) took an absolute beating on Thursday on news that PC sales in the first quarter were much lower than expected.

The stock plunged over 4% and closed near the lows.Goldman Sachs downgraded the stock to “sell,” as did two other major banks.

Ouch.

So after yesterday’s beating, is Microsoft a buy?

STOCK ON SALE

I believe the answer is a strong yes.First, let’s keep a little perspective.The hit to Microsoft’s share price did nothing more that erase the large gains of the previous two days.Microsoft and other PC-oriented companies had been rallying on no real news, and yesterday’s action simply reversed this.

I will admit that I was taken aback by the size of the quarterly decline in PC sales.They were down by a full 14%.Still, we really shouldn’t be surprised.With unemployment as high as it is in the United States and Europe, companies aren’t replacing their PCs.And consumers are stretching lifespan of their existing PCs a little longer and relying more on mobile devices.Windows 8 has also proven to be unpopular and intimidating to a lot of consumers.Yet all of these would seem to point to delayed sales rather than permanently lost sales.

BIG PICTURE

But all of this misses a very important point.Microsoft is more than just Windows.In fact, Office is significantly more profitable, and Office still has enormous room for growth on Android and Apple iOS devices.Microsoft has been noncommittal on a release date, but recent comments suggest a late 2013 or early 2014 release.

GAMERS

And next month, Microsoft is expected to release a new version of the Xbox that builds on Microsoft’s dominance of the living room.In addition to its core video game functions, the new Xbox will reportedly graft onto your existing or satellite box and allow for interactive TV watching.

TIME TO BUY

We shall see if any of these new endeavors are successful.If they are, then Microsoft is a steal at current prices.But even if they flop, Microsoft is cheap enough at 9 times earnings to be worth buying based only on the legacy Windows and Office businesses.

Action to take: By Microsoft. Use a 15% stop loss.