Microsoft Still Not Getting Any Love (MSFT)

Microsoft (NASDAQ: MSFT) has become a favored stock of quite a few savvy money managers such as Whitney Tilson of T2 Partners, but the stock price continues to lag the broader market by a wide margin. Even after the company reported strong quarterly earnings results on February 2, the stock sold off. While large cap technology competitor Apple (NASDAQ: AAPL) remains the darling of the stock market, MSFT hardly gets any love. The bulls on the stock point to its first-class pedigree, cheap valuation, and rising dividend yield as reasons why MSFT is a great investment, and they certainly have a point. Microsoft is a blue-chip technology company who continues to dominate in many of its product segments. The stock is also undoubtedly cheap. The shares trade at a trailing P/E of 11.52, a forward P/E of just 9.78 and a PEG ratio of 1.08. The company also yields 2.30% at current levels and has plenty of cash to continue to substantially raise its dividend. That cash pile, however, is a problem. It is not earning anything and this is one of the arguments that MSFT bears point to for the stock's poor performance. The company has a staggering $42 billion in cash and short-term investments, but it appears to lack a clear plan of what it will do with the money. Microsoft appears to have two options. It can either return that cash to shareholders over time in the form of an ever increasing dividend or it can use it to make accretive acquisitions, which would in turn, hopefully propel growth. The problem is that Microsoft's growth profile has not been compelling enough for years to compel investors to assign it a higher P/E multiple. The company has been caught flat-footed when it comes to high growth areas such as search, mobile, and cloud computing. Essentially, MSFT has not evolved fast enough to compete with its nimbler peers on the new frontiers of technology. In a lot of ways, MSFT is perceived as a dinosaur, albeit a very profitable dinosaur, but one whose future growth outlook is not as exciting as a company such as Apple. Making matters worse is that management has been resistant to parting with its cash hoard and continues to try to promote the company as a growth opportunity. Unfortunately, MSFT just has not been able to deliver in a meaningful enough way on its outlook. Over the last 10 years, MSFT shares have lost 5.75% and in the most recent 5 years, they have gained only 1.2%. This is just not going to get it done. Microsoft is still a great company and a very good stock to own if you are looking for capital preservation with some yield, but the company is going to have to make some radical changes to appreciably move the needle on the share price. Seeing as how it has been beat to the punch time and time again in high growth areas by competitors like Apple and Google (NASDAQ: GOOG), it may be time for management to accept its fate - this company will continue to make tons and tons of money, but will never be able to grow like some of its competitors. Therefore, it is time to raise the dividend and focus on returning cash to shareholders.