I Love Microsoft

Microsoft (Nasdaq: MSFT  ) is one stock that definitely deserves some love. Mr. Softy has a virtual monopoly on the operating-system market; it has an incredible software franchise in the form of Office, a little suite of productivity products you might have heard of; and it just might eventually become a major part of the entertainment center in living rooms all over via its Xbox brand. Plus, the company has made a heck of a lot of cash over the years, giving it the ability to afford big share repurchases and to grow quarterly dividends. Oh yes, loving Microsoft is a compulsion.

Just about all of us have used Microsoft software. Word, Excel, PowerPoint -- no modern office is complete without Microsoft Office. And what operating system is powering the computers that run these programs? Chances are, it's a version of Windows. Even though Apple (Nasdaq: AAPL  ) is an incredibly popular company these days thanks to its iPod killer app, PCs from Hewlett-Packard (NYSE: HPQ  ) , Dell (Nasdaq: DELL  ) , and Gateway (NYSE: GTW  ) all favor code developed by Microsoft.

Desktop makers, as well as Microsoft shareholders, are particularly excited right now because upgrades to Office and the new Vista operating system have hit the market. Over the next several years, a lot of computing consumers will take advantage of the updated features in Office. And although it's up in the air right now exactly how fast Vista will be adopted by business users, I'd say that the adoptions will eventually come. When they do, Microsoft will be ringing that register.

The Xbox 360 faces a lot of competition from both Sony's (NYSE: SNE  ) PlayStation 3 system and the Nintendo (OTC BB: NTDOY.PK) Wii. But it's got a nice head start of more than a year over those two consoles, and it is being positioned as a future hub of home entertainment. In fact, the Fool's own Seth Jayson wrote an interesting article about the potential of the Xbox 360 to revolutionize the way people interact with a high-end video-game console. If Seth is thinking good thoughts about the system, then there has to be something to it.

All of the above is nice, but let's talk about money. At the end of the second quarter, Microsoft had $29 billion in cash and short-term investments. It also had free cash flow of $1.5 billion, which was enough to cover the company's dividend obligations, currently at $0.10 per share. I believe there is ample opportunity for dividend increases for many years to come thanks to the company's cash-generating strength.

That's a summary of why I love Microsoft. There's been some lively price action in the stock in recent months, but you can bet that there's a lot of long-term upside left. This Valentine's Day, don't forget to send an affectionate card to Mr. Softy. It's one company that we all should love.

Commentary on Microsoft is definitely a part of the Fool's operating system:

What's sending Fools' hearts aflutter? Go back to our intro page to see what else we have a crush on.

Microsoft and Dell are Motley Fool Inside Value picks. Dell is also a Stock Advisor selection.

Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 14,437 out of 22,222 investors in the CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.


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