Microsoft Has Suddenly Become a Market Darling

The sell-off picked up fast and furious today on Wall Street today, in part because tensions are escalating again between Ukraine and Russia. Ukrainian forces are moving in on pro-Russian separatists and Russian troops across the boarder have been activated.

Stocks fall on news like this because traders don't want to go into a weekend with too much exposure to the market, so they'll sell off positions on Friday. Big political or economic news often occurs during the weekend, so that's why Fridays are such a big deal. At the end of the day, tensions between Ukraine and Russia should be expected and I'd look at this as a short-term buying opportunity.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) tumbled 0.8% as a result of today's sell-off, with 21 of 30 components in the red in late trading.

Microsoft becomes the market's darling
It wasn't long ago that Microsoft (NASDAQ: MSFT  ) was one of the Dow's laggards, but it's suddenly become an outperformer, doubling the index's gains over the past year.

MSFT Total Return Price Chart

MSFT Total Return Price data by YCharts.

Just the fact that Microsoft is up slightly today is impressive following the company's first-quarter results. Revenue was down slightly to $20.4 billion and earnings per share fell $0.04 to $0.68.  

Xbox One is now a considerable contributor to Microsoft's results.

But if you adjust for revenue deferrals and the Windows upgrade offer, revenue on a non-generally accepted accounting principles basis was up 8% and earnings per share were up 5%. The biggest positive came from the devices and consumer hardware unit, which is a big focus of new CEO Satya Nadella. Office 365 Home now has 4.4 million subscribers and added 1 million in the quarter, which also saw 2 million Xbox consoles sold and Surface tablet revenue rise 50%.

When you combine those results with today's close of the $7.5 billion acquisition of Nokia's handset business, Microsoft has momentum on its side.

It also doesn't hurt that the market is starting to put more value in companies that have consistent earnings. Microsoft has exactly that history. I don't know that Microsoft will outperform the Dow over the next year, but the consistent growth of its business overall shows the company isn't the dog that some wrote it off as just a year ago. It's still a power in tech and that's driving the stock in 2014.

Who can control the future of the living room
The cable industry is under fire and companies like Microsoft are trying to become the future of the living room. If it can, there's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it, but that won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 


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  • Report this Comment On April 25, 2014, at 5:49 PM, DriveHQJohn wrote:

    The market is right. At this time, Microsoft has little to lose, and far more to gain.

    Windows phone and Windows tablet market share will only increase. On the other hand, Microsoft's biggest competitors have more to lose than gain. Smart phone and tablet market has saturated, there will be little growth over the next few years, and Microsoft will take some market share away from Google and Apple.

  • Report this Comment On April 25, 2014, at 10:46 PM, danialwilson wrote:

    Microsoft is being darling for market because of acquisition of Nokia because http://goo.gl/OZUGXr

  • Report this Comment On April 26, 2014, at 10:30 AM, VegasSmitty wrote:

    Makes the Motley FOOL live up to its name!

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