Hold
While it was announced this past week that Microsoft Corporation (NASDAQ:MSFT) passed BlackBerry in total smartphones shipped during the first quarter of the year, Microsoft still controlled only 3.2% of the smartphone market while BlackBerry fell to 2.9%. But I also believe this may be a slightly misleading report, because BlackBerry didn’t release its newest smartphones and start selling them until late in the first quarter. And since consumers knew a new BlackBerry was coming out soon, they may have even held off purchasing a new device and just decided to wait. So we could see Microsoft relinquish the third spot in the smartphone industry once again to BlackBerry sometime later this year.
Microsoft also pays a dividend yield of 2.6%, which is fundamentally strong. The current payout ratio is only 44%, which means the company has a lot of room to increase the dividend in the coming years even if profits stay flat.
Buy
Even despite the poor Windows 8 sales and the slow start to the Windows smartphones, from a financial aspect the company is extremely healthy. Microsoft has more than $73 billion in cash, with less than $15 billion in debt. Operating cash flow for the past 12 months is more than $30 billion, while operating margins are at 35% and profit margins come in at 21%.
Furthermore, with the current share price and earnings per share of $1.94, the stock is trading at just 18 times past earnings, which is very reasonable. But with estimated 2013 earnings per share of $2.76, the forward price-to-earnings ratio of 11 is extremely cheap.
But while the balance sheet and fundamentals all look strong, the biggest reason I see for buying shares of Microsoft is its diversity. As I mentioned, the company’s key product is not performing all that well right now, but Microsoft is still making good money. Microsoft has spread itself out over a number of different products and industries and built a company that doesn’t need just one killer product, because it has five or 10 good ones. The Xbox, cloud data centers, email Web services, Microsoft Office, Skype, the company’s investment in the Nook, and the list could go on.
My point is, at one time Microsoft was a one-hit wonder, but today the company is more like a multiplatinum artist who keeps recording new tracks that are all good but still occasionally writes a blockbuster. I’m a shareholder of Microsoft and believe the company is a strong buy today.
The article Microsoft Sets New 52-Week High! Should You Buy, Sell, or Hold? originally appeared on Fool.com.
Fool contributor Matt Thalman owns shares of Microsoft. Check back Monday through Friday as Matt explains what caused the Dow’s winners and losers of the day, and every Saturday for a weekly recap. Follow Matt on Twitter: @mthalman5513. The Motley Fool owns shares of Microsoft.
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