Now Is Exactly the Right Time to Invest in Microsoft
Lennox is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On paper, Microsoft (NASDAQ: MSFT) is an investment that any "right-minded" investor should avoid. Not only did its stock fall 11% in the wake of its most recent earnings report, the largest drop since the infamous financial crisis, but the company finally seems to be accepting the fact that the PC is on a sharp decline. Does this mean you should blindly follow the bears? Not at all; the reality is that right now is the best time to invest in Microsoft. If anything, history has shown us that it is the "not-so-right-minded" investors who make the most money.
Proven track record of great innovation
Many people are oblivious to the fact that most of the technological concepts in today’s computing and mobile world were first introduced by Microsoft. Microsoft's problem is that it was always too early to the party, not too late as many people are made to believe.
Tracking back to 2003, you will realize that the concept of a smart watch was first introduced by Microsoft. Microsoft’s smart watch presented wireless services based on Smart Personal Objects Technology, earning the name SPOT watch. Users could get snippets of information like news headlines, weather updates and even stock quotes on their SPOT watches.
Although the SPOT watch was not a huge commercial success, it was an open display of Microsoft’s innovation. And now, some ten years later, Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) are very emphatic about wearable technology. While Apple’s iWatch was initially dismissed as one of those unending Apple related rumors, it has been confirmed that Apple has indeed filed a patent for the name ‘iWatch’. Google’s Google Glass, despite not having an official release date, has also sent ripples down the market.
As far back as 2007 and 2008, Windows Phone (then known as "Windows Mobile") had already filtered through the then-small smartphone market. Through Hewlett Packard smartphones, Microsoft was among the first to introduce the concept of the modern day smartphone. Sadly, the company seemed to have done all the research and development for Google and Apple.
Just after 2010, Google’s Android became a commercial success. In fact, it now commands well over 70% of the global smartphone market and even wants to make a bold venture into enterprise, as indicated by the U.S. Department of Defense’s early May move to allow soldiers use secure versions of Android. Apple has also proven its dominance; though not in sheer numbers, but in huge margins. Furthermore, it has been able to build a strong brand. Today, Apple remains one of the most recognizable brands in the global market.
New collaborative structure will bring out Microsoft’s great innovation
When Steve Ballmer announced major restructuring that would root out the bureaucratic culture that was deeply embedded in Microsoft, commentators were quick to say that he should start by stepping aside himself. Most people don’t understand that drumming out Ballmer will only treat an effect of the problem, not the cause.
The thorn in Microsoft’s flesh is not Ballmer but rather bureaucracy. Microsoft’s internal structure was set up in a manner that promoted unhealthy internal competition. Dividing the company into departments rather than by function made employees and executives focus exclusively on producing superior products rather than producing what best met existing consumer needs. In fact, former Windows head Steven Sinofsky reportedly used to subvert any products that threatened the importance of his segment.
Although it will take some time before the dust settles, organizing Microsoft by function rather than product is a definite step in the right direction. Apple uses functional organization and is in fact a testament to the positive results that collaborative structures have.
Through functional organization, Microsoft will achieve great synergies and will in the long run be able to anticipate customer needs more accurately. This will be a game changer as we have clearly seen that Microsoft’s biggest mistake is not the lack of innovation, but rather poor timing.
Dividend not to be ignored
Dividend Channel affirms that Microsoft is the top dividend stock of the Nasdaq 100, citing attractive valuation metrics. Its annual dividend yield of 2.9% is significantly higher than the average dividend paying stock in the Nasdaq 100 which yields 2.1%. Microsoft has also been able to increase its dividend progressively since 2005.
If you want to make your money on the rally, constantly gambling on when to pull out, then Google and Apple remain top picks. Microsoft, on the other hand, is less volatile, undervalued, and a good income investment. The best time to invest in Microsoft is now. Don’t wait until the market at large understands its great potential and drives the price through the roof.
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Lennox Yieke has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!