The Motley Fool recently released its list of The 25 Best Companies in America, naming the best businesses the nation has to offer. Yet even among companies that didn't make the final cut, some stocks distinguished themselves with their high quality and promise. Microsoft (NASDAQ: MSFT) is one of those companies, and it definitely deserves at least an honorable mention for its achievements.
The case for Microsoft
Hacking has multiple meanings in the tech world. Most famously, it means to break into a secure system. But for Bill Gates and Paul Allen, hacking was just what they did. The pair, friends since childhood, were looking for a way to cash in on their programming skills when, in 1975, they pitched Micro Instrumentation and Telemetry Systems, or MITS, on a tool for helping its new Altair computer interpret commands written in the BASIC programming language.
The resulting deal introduced the world to Altair BASIC. Microsoft would later develop Windows and grow to dominate the market for personal computer operating systems so completely that, in 1998, the Justice Department sued to stop the company from what they asserted were abuses of monopoly power. The business hasn't been the same since, which turns out to be good news for most of Microsoft's stakeholders. Indeed, Mr. Softy garners an honorable mention for its commitment to investors, employees, and the world at large.
While Microsoft has lost its share of high-profile executives in recent years -- former chief software architect Ray Ozzie, product marketing veteran Don Dodge, and one-time Windows chief Steven Sinofsky, to name three -- workers tend to give the company high marks as a place to work. More than 77% would recommend Microsoft to a friend, according to Glassdoor.
But that's also half the story. Workers are far less enthused by CEO Steve Ballmer. Only 48% approved of his performance as of this writing. "If there was a good performance measurement system then a forced stack ranking wouldn't be necessary. Poor performers would be fired and good performers wouldn't be forced out of their jobs," wrote one employee identified as a "curriculum manager." Another's advice was simply to "fire" current CEO Steve Ballmer. Investors tend to agree.
And yet with so many executives gone, there appears little chance Microsoft will seek to replace Ballmer. Nevertheless, it's troubling to see otherwise satisfied employees join a growing chorus of detractors.
Seeing once-hobbled competitors rise from the ashes can't be helping improve Ballmer's image. He famously derided Apple's iPhone, only to see it become one of the world's most popular handheld devices. Google's Chrome browser has unseated Internet Explorer as top dog in certain regions.
Smartphones are more important than browsers to Microsoft's fortunes -- for now at least -- which is why the company has teamed with Nokia (NYSE: NOK) for creating a compelling iPhone alternative. Trouble is, Samsung already has that position locked up thanks to the success of its Galaxy S series. Meanwhile, BlackBerry has introduced a reimagined BlackBerry that could steal some Windows Phone sales.
Microsoft hasn't done enough to win customers to Windows Phone, and the new Surface -- which looked like a hit initially -- is beginning to look like an also-ran. Which brings us back to Microsoft's core business (i.e., Windows and productivity software) and the Xbox. The former tends to comprise the vast majority of operating profits while gaming ekes out a meager gain despite wide enthusiasm for the Halo series and the Xbox 360 console.
Some investors are understandably tired of seeing Microsoft's stock barely budge over the past decade. They've watched Apple and Google soar as Mr.Softy's share price took a turn for the worse in the years after the dot-com bubble burst.
And yet that may be the minority. So prolific was Microsoft's rise in the years following a 1986 initial public offering that it created a whole class of workers called, quite literally, "Microsoft millionaires." More than 12,000 are said to exist, and that includes three of the world's richest men: co-founders Gates and Allen plus Ballmer.
Meanwhile, those who invested in Microsoft's darkest days of spring 1998 -- when the Justice Department announced plans to go after the company -- have seen their shares rise five-fold, easily beating the broader market.
While the Bill and Melinda Gates Foundation is an entity unto itself, there's no mistaking the Microsoft co-founder's influence when it comes to philanthropy. Not only is Gates putting his own billions to use, he's persuaded Warren Buffett to join his cause and the pair have since convinced 11 other billionaires to sign a pledge promising to give away substantial fortunes for the good of all.
The case against Microsoft
Influence matters in investing, no doubt. But so does focus, and few companies have proven as aimless as Microsoft over the past decade. A half-hearted try at the cloud led Ozzie out the door even as Mr. Softy's fixation on features led to Zune and Vista -- functional but unintuitive products that couldn't stand up against simpler alternatives. Sales slumped as a result, and we don't yet know enough about Windows 8 to judge if Microsoft has learned its lesson.
Can Mr. Softy still make you a mint?
Even though Microsoft didn't end up making the Best 25 list, its market position, loyal workforce, and (mostly) good history of delivering for shareholders -- a position that, today, is ensured by a dividend that yields more than 3% as of this writing -- strongly suggest the company deserved the distinction of being one of our 40 or so finalists.
But is the stock worth buying if you don't own it? Is it one of the best for the next decade? With the prevailing winds blowing in the direction of cloud computing, Microsoft has much work to do before minting more millionaires. In this brand-new premium report, our analyst explains the risks and opportunities facing Microsoft investors to help you decide whether the stock is a fit for your portfolio. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.