I like to watch Greenlight Capital latest moves and check which stocks have potential upside (with limited downside). I think that Microsoft could be one of those. Greenlight has been investing in Microsoft since the last 5 years and every time the stock went into the $25/26 range, the fund increased its position. Last quarter was no exception as Greenlight increased MSFT position by 41%.
Although there could be a secular move by consumers to non-Windows-based mobile devices such as the iPad, Microsoft is still selling its core products (Win and Office) in a predictable way.
In the last earnings call, Microsoft reported earnings of $0.76 per share, $0.01 better than the Capital IQ Consensus Estimate of $0.75 while revenues rose 2.7% year/year to $21.46 billion vs the $21.5 billion consensus. In addition, gross margin was 73.5% vs. estimates of ~73%. MSFT reported a solid quarter, highlighted by continued adoption of Win8 (>60M sold), Server & Tools and Bing Search monetization. Additionally, Microsoft told investors that enterprise demand remains healthy, as customers continue to add products and additional seats to their enterprise agreements.
Shares are very cheap, trading at just 9x Forward P/E and a Price/FCF of 8x which is at the low end of MSFT P/FCF 5 year range of 8-14x. Microsoft could approach to $30 considering that analysts expect a conservative FY13 EPS of $2.85 multiplied by a low P/E of 10x. I think it is now good time to buy the stock.