I'm a diplomat at heart. Really. I don't like to make enemies.

So every week, even as I rip into a single stock and take it down a few pegs in this column, I always come right back and suggest three other stocks that I think will beat the market. It's a fair trade, I hope.

Who gets tossed out this week? Come on down, Microsoft (NASDAQ:MSFT).

Hard times for Mr. Softy
There still seems to be a lot of love for Microsoft out there, despite -- or possibly because of -- its historically low stock price. In my "I Can Make You Rich in 3 Years" commentary yesterday, I suggested that investors seek out stocks that will be more relevant in three years than they are today.

To illustrate the opposing view, I figured Microsoft would be a safe bet.

"Can you honestly explain to me how the world's leading software company will be as relevant in 2012 as it is in 2009?" I asked. "Sure, there will be a wider audience of computer users in three years, but they aren't as likely to rely on Microsoft. Between open-source operating systems, free cloud-computing knockoffs of Microsoft Office, and a growing number of Web browsers, Microsoft will only continue to relinquish market share in many of its high-margin businesses."

I rubbed a few of you the wrong way with that assumption. Here are a few of your choice complaints:

  • "Are you trying to tell us that [Microsoft] will be stuck in the gutter where it is now for the next 3 years? I think not. Even if it only reclaims half of its earlier share price, which is not that hard to imagine, a person can still make nearly a 50% capital gain!"
  • "Microsoft is a cash cow. They'll just buy out their competitors."
  • "I expect they will continue to grow earnings faster than the overall market. Nobody cares about Linux."

I graciously accept all feedback, even when it makes my diplomatic heart skip a beat. I respect anyone who takes the time and effort to let me know they disagree with me. By all means, keep it coming. However, I'm sticking to my guns this time.

The assumption here is that little has changed at Microsoft. Over the past few weeks:

The economy is in a funk, but this doesn't mean that Microsoft isn't going to be the same bellwether it was before the downturn. After arguably unwarranted knocks on Vista, do you really think the public will embrace Windows 7? Computers continue to get cheaper, and less powerful in the case of netbooks, so why won't Microsoft's operating systems and productivity suites be marked down in the future?

A lower market share at shrinking price points is not going to keep this "cash cow" grazing on blades of greenery the way it used to. Even online, where Microsoft is somehow losing gobs of money at MSN, it blew the opportunity to turn that around by snapping up Yahoo! (NASDAQ:YHOO). Yes, Yahoo! wanted too much money for its company last year, but apparently so did Microsoft shareholders.

Good news
As is the case every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.

  • Google (NASDAQ:GOOG). Analysts see Microsoft's earnings continuing to fall through the remainder of the fiscal year, before bouncing back in fiscal 2010. In short, Wall Street sees profits growing by a mere 4% from fiscal 2008 through fiscal 2010. Google, on the other hand, is expected to grow its earnings per share by 15% over the next year alone. Microsoft may be fetching a more attractive earnings multiple based on 2010's target (8 for Microsoft vs. 13 for Google), but I am not confident with Microsoft's prognosticators. Microsoft has missed Wall Street guesstimates in three of the past four quarters. In the meantime, Google continues to gain search-engine market share at Microsoft's expense, and its Google Docs offers a free Web-based alternative to Microsoft Office.
  • Salesforce.com (NYSE:CRM). Sticking to the cloud computing theme, when corporate spending does bounce back, it will do so prudently. Salesforce has been bucking the malaise, growing nicely as it wins converts to its Web-based enterprise apps. It has 55,400 corporate accounts, and counting. Microsoft isn't as heavy in enterprise software as, say, Oracle (NASDAQ:ORCL), but when you're the world's leading software company, how can you not be threatened by a company whose toll-free number is 1-800-NO-SOFTWARE? The beauty of Salesforce is that its programs can run on most computers with Web access. Companies no longer need to upgrade to the latest operating systems or upgrade to more powerful hardware. The cloud computing revolution is going to deal a major dent in the traditional upgrade cycles that Microsoft has been feasting on for years. Salesforce isn't cheap, but analysts see the company's earnings soaring over the next two years.
  • Apple (NASDAQ:AAPL). There are plenty of companies nibbling away at Microsoft's market share. Between Nintendo (OTC BB: NTDOY.PK) ruling the console wars and Firefox gaining in the browser battle, Microsoft is being threatened from all over. I see Apple's challenge as the fiercest, because Macs continue to grow faster than the Windows-powered computers that make it all possible. Yes, Apple computers can run Windows, and Microsoft's Office is a popular Apple program. However, all that will become less relevant as the Web plays a larger part of the computing experience. I won't even mention how Apple's iPod has humiliated Microsoft's Zune.

Value investors are drawn to Microsoft based on what the company has done in the past, but I'm not so sure that they are weighing the company's future. Yes, its stock is trading for roughly half of last year's high, but the same can be said of Google, Salesforce.com, and Apple.

The deals are everywhere. Investors simply need to find the bargains that will bounce back.

Other headlines out of the weekly Dumpster:

Microsoft is a Motley Fool Inside Value pick. Google and Salesforce.com are Motley Fool Rule Breakers selections. Nintendo and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz isn't sure if Mr. Softy likes to play hardball, but he hopes he's wrong and that Microsoft does thrive in the future. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.