MICROSOFT CORP. $32 - Nasdaq symbol MSFT

MICROSOFT CORP. $32 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 8.3 billion; Market cap: $265.6 billion; Priceto- sales ratio: 3.6; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.microsoft.com) continues to benefit from strong demand for its business software, particularly programs that run server computers and data centres.

However, falling demand for desktops and laptops is hurting sales of the company’s new Windows 8 operating system. Sales of mobile devices powered by Windows 8 have also suffered in the face of strong competition from other smartphones and tablets.

In its 2013 fiscal year, which ended June 30, 2013, Microsoft’s revenue rose 5.6%, to $77.8 billion from $73.7 billion in 2012. However, earnings fell 5.4%, to $27.0 billion, or $2.62 a share, from $28.5 billion, or $2.78 a share. These figures exclude several unusual items, such as a $900-million writedown of unsold Surface RT tablet computers. To spur sales, Microsoft has cut the price of these tablets by 30%.

The company’s balance sheet is strong: its longterm debt of $12.6 billion is just 5% of its market cap. It also holds cash and investments of $77.0 billion, or $9.25 a share. That gives Microsoft flexibility to develop new products: its research spending rose 6.1% in fiscal 2013, to $10.4 billion (or 13.4% of its revenue) from $9.8 billion (or 13.3% of revenue) in 2012.

The stock is down from its July 2013 peak of $36. It now trades at just 11.2 times the $2.85 a share that the company will likely earn in fiscal 2014. The $0.92 dividend yields 2.9%.

Microsoft is a buy.

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Blue chip stocks are big, well-established, dividend-paying corporations with strong business prospects. These are companies that also have sound management that should be able to make the right moves to keep competing successfully in a changing marketplace.

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Value Stocks

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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