) to their portfolio. This story is primarily about valuation as opposed to any tremendous developments taking place at the Redmond, Washington based tech giant. The stock is cheap. MSFT trades at a trailing P/E of 11.30, a forward P/E of 9.02 and a PEG ratio of 0.97. The stock has lost nearly 22% in 2010. There is a lot of negativity priced into this stock right now, and next to no upside. This outlook is not completely unjustified as MSFT has not been the most innovative outfit in the tech space. That being said, the company is very good at the "blocking and tackling" parts of its business and throwing off tremendous amounts of cash. There are likely two different outcomes for Microsoft over the next ten years. Under either of these scenarios, long-term investors who get in at current levels should make money. The first of these is already happening to some extent and is the worse of the two likely scenarios. Essentially, MSFT will become a no-growth to very low-growth company which continues to make tons of money but is unable to appreciably grow its revenue and earnings. The other alternative is that MSFT will become a more innovative and forward looking company. Catalysts for this outcome could be a shake-up in management, a meaningful R&D breakthrough, or a transformative acquisition. Under the first scenario, which the stock price is implying is highly likely, investors will profit from an ever increasing dividend as well as a stable share price. MSFT's valuation is attractive right now even if the company is not able to produce significant growth. The company has a ridiculous amount of cash. As of June 30th, MSFT had nearly $37 billion in cash and short term investments. The bottom line is that at some point if Microsoft is unable to move the needle on their share price, a big chunk of this cash will be paid back to shareholders. The most likely way is through stable and consistent dividend growth as well as share buybacks. Under this scenario, long term investors stand to benefit significantly even if the stock price underperforms the broader market. The other potential outcome for MSFT is that the company is able to transform itself to some degree and experience a renaissance of the company's high growth years. Investors buying in at today's levels would experience a tremendous return over an extended period of time if this were to become a reality. The market at this point, is completely and totally discounting this possibility. MSFT's valuation is suggesting that there is next to no chance of this happening. There is a much better chance of this occurring than the market is pricing into the stock. For this reason alone, MSFT is a bargain. Furthermore, the reality at the company is quite a bit better than the market is pricing in. For example, MSFT has grown its revenue from around $51 billion in 2007 to $62.4 billion in 2010. That is not bad. Net income has gone from a little over $14 billion in 2007 to nearly $19 billion in 2010. The stock, however, has languished. At one point in 2007, the shares were trading above $35. During today's session they are exchanging hands for just $23.86. Even as recently as April, this was a +$30 stock. Right now, however, it is on sale and that is the best time to buy. MSFT might not make you rich overnight like it did for many people in the 90s, but this is a high quality company which is inexpensive, pays a dividend, and could offer much more upside than what the market is currently pricing into the shares. Get free trades at