COMPANY PROFILE

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. MSFT holds a significant amount of IP like: Office, Exchange, SharePoint, Microsoft Teams, Skype, Outlook.com, and OneDrive. MSFT also owns LinkedIn. They offer personal computing technology like: Microsoft Surface, PC accessories, and other intelligent devices; Gaming, including Xbox hardware, and Xbox software and services comprising Xbox Live transactions, subscriptions, cloud services, and advertising; and video games and third-party video game royalties, as well as Search, including Bing and Microsoft advertising.

Style Factor Benefits

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Microsoft scores well as of 12/30/21:

• 83% high margins versus industry peers

• 88% strong price momentum trends

• 75% high dividend growth trends

• 76% high shareholder yield (the sum total of a return to shareholders via dividend, net buybacks, and debt repayments)

• 80% low volatility stock

• 91% high ROIC over WACC (weighted cost of capital)

• 93% low probability of default

• 88% high ROIC and ROIC growth

• 96% high blended MOAT score - a proprietary metric

• 99% highest free cash flow

• 82% sales surprise last quarter

1/26/22 Update

MSFT out with earnings. Sentiment towards tech and growth is dreadful so the knee-jerk AH was -5% then the conference call began and the stock reversed course and was +5% today at the open. We have a battle right now, solid businesses that are still growing well but that have higher valuations, many of which are warranted given the strong & recurring revenues and cash flows they generate. For now, the market doesn’t care much, MSFT is off 15% from the highs and still performing exceptionally well. Eventually that will matter. Trees don’t grow to the sky though, like every business, MSFT will eventually have a slowing of growth until the next cycle of cap-ex driven or M&A driven growth appears. MSFT is a core holding and I do not see anything that changes that decision. Sometimes we will own more of it (when its down) and sometimes less (when its at the top end of the range) but its a FCF machine, growth machine, recurring revenue machine and must-have for most corporations. That kind of stability in EPS, FCF and growth deserves a high multiple, particularly in today’s uncertain environment. I’m happy to buy more on a further market dip.

12/31/21 Update

Today’s Microsoft isn’t the same brand as the Microsoft you knew during the Internet bubble. Microsoft was the biggest company by market cap at the bubble peak and it’s likely to be the biggest company again. The amount of growth drivers current at MSFT is incredibly impressive. Microsoft is a leading brand across a variety of important consumer and B2B categories: Big data, AI, Cloud Computing, Video Gaming, Personal Computing, & Social. Under CEO Satya Nadella, Microsoft has thrived across every business division. This is a recurring revenue, high free cash flow generating machine that’s tied into most organizations, large and small.

There’s simply nothing not to love here, MSFT is executing unbelievably well. The stock is now a $2.5trillion market cap brand and continues to fire on all cylinders. It’s not a cheap stock at 27x but in a low growth world, people pay up for the stability and predictability that’s embedded in MSFT. It’s become a cash cow similar to Apple and Google which makes the stock fairly defensive even in tough times. That’s my kind of stock! It’s ironic that most people don’t think of Mister-softy as an innovative, tech brand but they are missing the “new Microsoft “ story. Microsoft has significant IP and intangible assets tied up in the company and is the owner of some of the most recognizable brands around the globe. They dominate corporate computing and continuously add new products and services and their cloud division, Azure is in full beast mode. Microsoft is what I call a GARP stock, growth-at-a-reasonable price. Buy the dips here.