In this article, I will talk about three of the most compelling opportunities on the Dow Jones Industrial Average. So read closely, because there are opportunities even among the whales.
Let’s start with Microsoft Corporation (NASDAQ:MSFT)
Microsoft Corporation (NASDAQ:MSFT)’s stock price struggled back in February due to estimates of declining computer demand. Windows 8 upgrade licenses were able to make up for the company’s decline in revenues, however.
The problem that investors face when it comes to Microsoft Corporation (NASDAQ:MSFT) is that it is pretty hard to determine the future growth potential of the company. Certain segments such as Skype, entertainment, mobile, and servers should be able to grow significantly in the coming years. The Windows segment should be hit with some difficulty, though, because of declining tower and laptop PC demand.
That being the case, in a previous article I tried my best to outline the future potential of Microsoft Office 365. I believe that the cloud software suite is going to be the primary growth driver of the company as it opens it to a new user ecosystem and the emerging market economies at the same time.
Because of this, I was able to forecast that the company may be able to generate an additional $10 billion in net income per year by 2017. Because Investors should be snapping up the stock as it trades at a pretty reasonable valuation. I believe that Microsoft Corporation (NASDAQ:MSFT)’s consolidated profit could grow to be above $35 billion from its current $16 billion. The company may be able to double its net income again.
The company’s stock currently trades at a 17.8 earnings multiple and pays out a 2.66% dividend yield. The company’s valuation is relatively cheap when compared to the potential growth. The stock also offers a compelling dividend for all those who are seeking some much needed refuge from the bond market.
The financials are a good place to start
Believe it or not, running a bank does not require that much overhead expense. It is becoming more common for work to be concentrated by fewer and fewer people. The technological sophistication of computers is making it possible to reduce the size of the workforce. Going forward, it is likely that process-driven innovation will allow for Bank of America Corp (NYSE:BAC) to employ fewer people.
Because of this, Bank of America Corp (NYSE:BAC) CEO Brian Moynihan believes that it can drive some of its net income growth through a reduction in head count. The company will be reducing its expenses by $8 billion through 2015. It’s earnings growth in its most recent quarter was driven by a decline in loan loss allowances, which decreased from 3.61% in the first quarter of 2012 to 2.49% in the first quarter of 2013. The company also reported a decline in net charge-offs, falling from 1.8% in the first quarter of 2012 to 1.2% in the first quarter of 2013. The decline in loan-related losses helped the bank to grow earnings.