Every morning I check my inbox, and every morning I get some variation of the same question: "Louis, what do you think of (insert well-known publicly-traded company here)?"
It’s a question that I can’t get enough of. After all, I built my own stock screening tool, Portfolio Grader, just so that I could stay abreast of the latest trends. And I share that very same tool with you for free so that you can get the benefit of the powerful data backing up this system. Of course, even Portfolio Grader can only do so much at this point, so a little over two years ago, I unveiled my Stock of the Day feature.
Stock of the Day is an article that I publish each and every day. Every trading day, I will give you a new Stock of the Day with my buy, sell or hold analysis. I dig into the stock’s current Portfolio Grader Grade, the history of the company plus my analysis of any breaking news (earnings reports, dividend payments, M&A activity, etc.) that may affect share price going forward. In the past week alone I have covered big names like Home Depot (HD), Wal-Mart (WMT), Johnson & Johnson (JNJ) and Amazon.com Inc. (AMZN). It’s all here.
But out of all of these reports, there was one that many of my readers were especially interested to read. That’s because in a matter of months, this stock has been upgraded from a D-rated sell all the way to a B-rated Buy in my ratings system! So in case you missed it, here’s the company that’s making waves in Portfolio Grader…
Stock of the Day: Microsoft (MSFT)
It has been nearly three months since Microsoft‘s (MSFT) CEO Steve Ballmer announced his plans to retire. And Wall Street has clearly voiced its approval for this decision; during that time, MSFT shares have rebounded nearly 20%. But will the exodus of Ballmer really change Microsoft’s future prospects as much as shareholders are anticipating? Find out now.
Company Profile: Microsoft started as a basement operation with Paul Allen and Bill Gates selling simple computer programs for the Altair 8800 microcomputer. Only 10 years later, the company released the first retail version of Microsoft Windows, an operating system that would ultimately become standard on most home PCs. With the success of Windows as well as Microsoft Office, Microsoft Inc. has grown into a tech giant that brings in just under $78 billion in sales annually and has 99,000 employees worldwide.
Earnings Rundown: In the first quarter the company saw strong growth in its commercial licensing business, particularly for its Office 365, Azure and Dynamics CRM Online software. So net income advanced 17% year-on-year to $5.24 billion, or $0.62 per share. Adjusted earnings were $0.63 per share, which trumped the $0.54 consensus EPS estimate by 14%. Meanwhile, revenue rose 16% to $18.53 billion, also beating the $17.79 billion consensus estimate. MSFT shares rose to a three month high after the company reported these results and have continued to trade in that range.
Competition Breakdown: There are 127 companies in the Business Software and Services industry. Of those, Microsoft is second largest in terms of market capitalization. In terms of fundamentals, Microsoft’s 3% dividend yield also stands out by being the fifth highest, as does its 30.1% return on equity, which ranks sixth. Microsoft also makes the top quartile in terms of sales and earnings growth. Microsoft’s main competitors are Apple Inc. (AAPL), Google Inc. (GOOG) and Oracle Corp. (ORCL). At time of writing this, AAPL and ORCL are D-ranked sells while GOOG is a C-rated Hold. Of the four, Microsoft has the strongest operating margin growth, earnings surprise track record and earnings momentum. Meanwhile, the other three are experiencing anemic buying pressure from institutional investors, which isn’t a good sign for the stocks’ risk-to-return ratio.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. MSFT, a Conservatively-ranked stock, has experienced a surge in buying pressure ever since CEO Steve Balmer announced plans to retire in the next several months. Confidence in MSFT stock was further bolstered by a 22% hike in Microsoft’s quarterly dividend and a new $40 billion stock buyback program. So since the summer, MSFT has improved in my system from a D-ranked sell to a B-ranked buy as the stock’s Quantitative Grade improved to a B-rating. On the fundamentals side, Microsoft has managed to firm up sales growth and earnings growth (which are both B-rated) and its operating margin growth (which is now A-rated). So MSFT also receives a B for its Fundamental Grade.
Bottom Line: As of this posting, November 19, I consider MSFT shares a B-rated Buy. In a matter of months, the company has managed to turn around its image so I now recommend this stock for new money.