The Microsoft case II

In my last post I went thru the main reasons while I think MSFT is a buy.

The stock fell sharply in November due to Obama’s relection (about 4% in 2 days) and after that because of Sinofski’s departure (another 4%).

To me MSFT was a buy at 29 so nothing has changed since then, except for the string of bearish articles (Surface’s reviews, Surface’s sales, MSFT empty stores, PC sluggish demand, W8 flop) span all around the web that led to another 10% decline.

In this article I will assume that you have your reasons to think about buying the stock at today’s price of 26.5 and you are now scared or putting a very tight leash to this buy because everyone says its in bearish territory,

Well, the way i see it MSFT should at least recover about 5% for the chunk of the huge fall taken after the elections, almost entirely offset in the whole market but not in MSFT.

With that happening MSFT should trade around 28.9 sometime in December, which is above the big gap down following Sinofsky’s departure, the level before elections. This target matches the one I get based on the Double bottom pattern just confirmed today as the stock touched the low of the downtrend (26.34) and didn’t go any lower. See here for more details.

To the downside we still have to wait. I think it will mimic the S&P meaning we need Fiscal Cliff solved soon. Anyway the more it goes down based on rumors the quicker it will go up, kind of like what happened with AAPL’s sell off and then jumping 7% in one day.

To the upside we have a big number of W8 devices (tablets and PCs) coming out in December and Surface Pro in January. There is also a rumor Nokia is close to start selling its Lumia Windows phone flagship in China.

Another interesting point is that estimates for this Quarter are the same as last year, around 0.77. MSFT beat estimate last January, and I don’t see why this can’t happen again specially with a lot of products out there which didn’t exist in 2011. I also think W8 sales should be higher than W7 sales in 2011 Jan Quarter, because the later was a product at the end of the cycle and the former is at the beginning.

Finally, I’d like to mention that I added to my position when the stock traded around 27.25 since indicators showed strong bullish sentiment. After that a couple of negative reports hit the stock but for now its holding its major support at 26.34. My system is not very sensitive and only signals strong movements so I still believe that this late performance is not justified.


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