Can Microsoft Corporation (MSFT) Break Out?

Oracle is a software and hardware company that has managed to outperform IBM by 26 percentage points YTD. The tech company pays a relatively low dividend that yields only 0.7%, but also trades at the high end of the industry on a valuation basis at 16x trailing earnings. We continue to have a positive outlook on the company given Oracle’s high-margin business and 12% long-term expected earnings growth. Oracle is one of Ken Fisher’s – founder of Fisher Asset Management and long-time Forbes columnist – top tech picks (see all of Ken Fisher’s favorite stocks).

HP, meanwhile, is the struggling PC company that is down 40% year to date. HP is expected to continue to see interim pressures and also has the lowest 5-year operating margin of the five tech stocks listed here, at 9%. While the computer hardware company appears cheap at only 4x forward earnings, we remain cautious on its 5-year earnings growth rate that is expected to be flat, and its dividend could be cut. Interestingly, billionaire Ray Dalio of Bridgewater Associates is still a big name investor of HP’s (see all of Ray Dalio’s stock picks here).

Now, Google is the search engine giant that continues to gather investor confidence despite missing earnings by 15% last quarter. The tech company is up 10% year to date and is expected to continue performing well given despite being the only one of Microsoft’s competitors that does not pay a dividend. Of the companies discussed here, Google does have the highest 5-year expected EPS annual growth rate of 19%.

Looking back at Microsoft, its stock pays one of the highest dividend yields in the tech field at 3.4%. The valuation is also very intriguing for Microsoft with one of the cheapest P/E ratios – 15x – and an even cheaper forward P/E of 8.5x. What is even more attractive is that Microsoft has the best margins in the business, with a 5-year average operating margin of 38%. With that being said, value investors should be considering the prospects of adding shares of MSFT to their portfolios while they still trade at their current valuation. To continue reading about Microsoft, check out our recent coverage:

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