Microsoft A Substantial Value Investment and Stable Utility Stock According to Barron's

Barron's writer Tiernan Ray writes that Microsoft's shares have fallen 46% this year, worse than the 40% drop in the S&P 500 Index, as investors worry about falling PC Sales. But he thinks that falling PC sales should not worry investors.

That is because with a 2.7% dividend yield, which is higher than the 2.1% yield on the 10 year T-Note, and a vast commitment to buying back shares, Microsoft has become a substantial value investment and looks like a stable utility stock of the digital age.

He notes that at 10x forward earnings, the stock is trading at a 20 year low. He also states, quoting a Cowen & Co analyst, that a recession is good for Microsoft because it affords the company time to catch up to competitors like Google.

And a cash machine the company is, generating $18 billion in free cash flow in the most recent year ended June, and currently has $21 billion in cash on the balance sheet. Management has paid out dividends totaling $115 billion in the past five years, including the special $3.00 per share cash dividend paid out late 2004 for $33 billion. This past September the company announced a new $40 billion share repurchase authorization good until 2013.

Overall, he believes that as long as PC sales continue, Microsoft's bank account will keep growing.