Turning to Microsoft (MSFT) one of the more hated technology companies, I believe their future is much more positive than most would say. Their stranglehold on enterprise computers and software will still be an effective barrier against competition and provide a launching point for further innovation and products even as more people turn to mobile devices versus desktop computers. I'm excited about a future Microsoft tablet and believe they can also do well with future smartphones.
As consumers and businesses adopt more mobile devices and integrate it into their lives and workplaces, I believe Microsoft still has a strong enough footprint and market share to continue to grow earnings. Their balance sheet can be used to acquire newer technologies (recently Skype).
The macro environment definitely is a tailwind for companies that can earn money on the move towards mobile devices and further computing upgrades for busineses. While Apple (AAPL) fans and Microsoft haters don't like to hear it, Microsoft will absolutely benefit from this environment and continue to rack in profits for many years to come. Microsoft is a great future dividend growth company and is trading for a very attractive entry point currently.
MSFT is selling for $23.85 with $5.50 excess per share cash over debt. This nets to a net price of $18.35 per share and calendar year 2011 projected free cash flow per share of $2.80. This results in a PE ratio of 6.6 with projected growth in earnings.
This appears to be unbelievable and very undervalued on a discounted cash flow basis.
How can this be with big institutions setting the market price and with far more knowledge about the company than the retail investor?
The only possible conclusion is that the market believes that MSFT will waste all its excess cash and that the future is one of declining not increasing earnings. Any other assumptions would result in a higher stock price.
I find these assumptions to be unrealistic but they are imbedded in the market price.