MICROSOFT BACK IN AN UPWARD TRAJECTORY AFTER MILD PULLBACK – HOW HIGH CAN IT GO?

Microsoft Corp.

shares led the market's rally off the October lows by rallying nearly 20%. Since peaking out on November 14th, however, the shares have pulled back in what could be a normal pullback in a bull trend. Does the company have the fundamental goods to propel it up to new 52-week highs? Let's take a look.. What the bulls see in Microsoft… • Still attractive profit margins north of 23 percent • Massive levered free cash flow of $23.41 billion annually • A nearly perfect balance sheet: o $88.54 billion in cash versus only $23 billion in debt o Debt-to-equity of only 26.53% o Current ratio of 2.52 • A Treasury-beating dividend rate of 2.5% with a 44% payout ratio – indicating a little room for dividend growth in the future. • Attractive valuations for a mega-cap: o A P/E of around 16 versus estimated EPS growth of 17.6% for 2015 o A price-to-sales ratio of 4.40 What the bears see in Microsoft… • Rich valuation metrics: o The market capitalization of $399 billion trumps the enterprise value of $334 billion o The price-to-book is 4.47 o The 16 P/E doesn't seem so cheap when compared to 6% revenue growth The technical take on MSFT…. Technicians feel that Microsoft shares may have completed a corrective move down at around $47.28 in the last two weeks. Since then, the stock has been trying to work higher once again. If their read is correct, then MSFT should make a run up to the $50.65 projected wave “v” resistance on the chart. Any close below 47.28 will put this bullish technical set-up in jeopardy of not coming to fruition, however. Overall… Potential long-side players in MSFT will be looking to enter the stock on any pullback to around the $47.81 level with stops in place on any close below 47.28 and a target of $50.65. Short-sellers may be trying their luck with MSFT at or near the previous high at $50.05. They will be using any close above $50.05 as a stop loss.