Microsoft (NASDAQ:MSFT) hasn't landed on many investors' holiday wish lists. As the stock hovers near the same level it was at 10 years ago, it's easy to see why many Microsoft shareholders are considering throwing in the towel. Microsoft CEO Steve Ballmer was asked several performance-related questions at the recent shareholders' meeting, and rightfully so.
Year to date, Microsoft's stock is up all of 3.8%. Microsoft's minimal returns compared to the 45% jump in Apple (NASDAQ:AAPL) shares, a 7% bump in value for the increasingly competitive Google (NASDAQ:GOOGL), and a nearly 5% year-to-date increase for IBM (NYSE:IBM) shareholders make Microsoft's share price "rise" look shameful.
Got you right where I want you
The decline of worldwide PC sales, coupled with Microsoft waiting too long to join the mobile computing party, which Ballmer admitted to recently, are often cited to explain Microsoft's ho-hum stock performance. While Microsoft's worldwide share of the smartphone OS market improved in Q3, its 2.4% remains well behind Apple's iOS 13.9% and, of course, Android's 72.4%. But to a growing number of fans, myself included, the "problems" are what make Microsoft a perfect value play.
Nomura analysts reiterated the firm's buy rating on Microsoft, placing a $37 price target on the stock. And Nomura is hardly alone -- Longbow Research, RBC Capital, and Raymond James also chimed in on Microsoft, with target prices ranging from $33 to $36 a share. At its current $26.75, Microsoft has an upside of over 20%, based on the lowest estimate.
And analysts aren't alone in their assessment of Microsoft. Marketing firm Greenlight named Microsoft the company to keep an eye on in 2013. Then there's Jim Simons' Renaissance Technologies. Renaissance manages over $15 billion in assets and remains a significant player in the industry, even after Simons' retirement a couple years ago. According to its recent SEC filing, Microsoft is now the fund's top holding, making up 1.4% of its total value.
That's great, but so what?
Though not quite a consensus, the reasons for all the good tidings are pretty similar. Yes, Microsoft was slow to get on board mobile computing; that's an undisputed fact. But with the rollout of Windows 8, sales of the Nokia smartphone running its Windows OS looking good, and its own tablet hitting the shelves, insiders are expecting revenue growth of nearly 10% in 2013.
Also noted by the growing contingent of Microsoft fans is its forward P/E of 8 and 3.4% dividend yield, yet it continues to fly under the radar. With Apple's iPhone 5 and iPad Mini alongside Google's Nexus phone and tablets getting all the press, Microsoft's gotten lost in the shuffle.
IBM maybe the old-timer of the group, but with its multiple cloud computing solutions, it shouldn't be discounted. A quick glance at IBM's recent Q3 is proof positive IBM is a serious cloud competitor. While revenue was relatively flat in most business units, IBM's cloud services have already generated more revenue than all of 2011. As for Microsoft, its OS and Surface tablet have been front and center lately, but its commitment to the exploding cloud market -- just as with IBM -- should pay big dividends going forward, too.
As you know, investing in any security based solely on analysts or industry insiders' recommendations is rarely a good idea. But in this instance, they've got it right (finally). Microsoft's mediocre stock performance and relative valuation translates to minimal downside risk. That, combined with multiple growth opportunities heading into 2013, and beyond, has a lot of industry insiders singing Microsoft's praises.
It's hard to imagine an undervalued $227 billion industry icon not showing up on investment radars, but that's been Microsoft's fate -- at least for now. For one of the best values the market has to offer, you'll find Microsoft, hiding in plain sight.
Fool contributor Tim Brugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, International Business Machines, and Microsoft. Motley Fool newsletter services recommend Apple, Google, International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.