The Microsoft Case VI


MSFT had a bullish day today, going up 180 percent points in a quiet day where S&P closed flat and Nasdaq 30 points up. The close was near the high of the day which signals the stock is gaining strength.

The bullish case for MSFT has already been made here. The stock is a gift under 29 considering its intrinsic value of 35 or higher. If you don’t trust me, take a look at the ratio of Price to Free cash flow which is less than 8!!!. I like that ratio very much and in many cases prefer ir to PE since the last one can be misleading with earnings manipulation. At the end of the day what you want from your stock is to get free cash out of its earnings. Anyway, normalized earnings for MSFT are around 2, what gives us a PE of 13 and not today’s 14.5, which is affected by a one time charge of a past acquisition write-off (part of which can get back as cash now that Facebook is reportedly interested in it).

On the technical side i found a possible pattern for MSFT when it comes to reverse trends and filling gaps. Its a guess but could happen:

Image

Thanks for readying,

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