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People visit the Microsoft booth at the 2013 Computex exhibition at the TWTC Nangang exhibition hall in Taipei in this June 4, 2013 file photo. (PICHI CHUANG/REUTERS)
People visit the Microsoft booth at the 2013 Computex exhibition at the TWTC Nangang exhibition hall in Taipei in this June 4, 2013 file photo. (PICHI CHUANG/REUTERS)

Research Report

Why value model portfolios love Microsoft Add to ...

Validea’s pick of the week provides a detailed report on a company that scores well in the stock-screening service’s model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor has a distribution agreement with Validea.ca. Try it.

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One of the largest companies in the world, Microsoft Corp. has raked in more than $83-billion (U.S.) in sales over past 12 months. Market cap for the software giant is $303-billion.

Microsoft has increased EPS in all but two years of the past decade, one reason it gets strong interest from the Warren Buffett-inspired model.

It has averaged a 32.4-per-cent return on equity over the past decade, a sign of the "durable competitive advantage" Buffett is known to seek and more than twice the Buffett model's 15-per-cent target.

Microsoft has $22.8-billion in annual earnings, with which it could pay off its $20.7-billion in long-term debt in less than a year if need be, which the Buffett model considers exceptional.

The stock trades at a reasonable 13.5 times earnings. Cash flow of $3.26 per share more than doubles the market mean of $1.60, one reason it gets strong interest from the James O'Shaughnessy-based value model. And the company has a 3.1-per-cent dividend yield, which the O'Shaughnessy model also likes.

Microsoft has more net current assets ($73-billion) than long-term debt ($21-billion), which the Benjamin Graham-based model likes. And it has a 3.7 current ratio, another sign of a strong balance sheet.

John Reese does not own MSFT.

Click here for a complete breakdown of Validea's investing guru report.

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