Sunday, October 31, 2010

Microsoft Inc. (NASDAQ: MSFT) Q4 2010 Analysis

Recent price: 25.82$
P/E Ratio: 12.23
3 month Target Price: 29.75$

Company Description
Microsoft Corporation is engaged in developing, manufacturing, licensing and supporting a range of software products and services for different types of computing devices. Its software products and services include operating systems for personal computers, servers and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; computing applications; software development tools, and video games. It operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. It also designs and sells hardware, including the Xbox 360 gaming and entertainment console and accessories, the Zune digital music and entertainment device and accessories, and Microsoft personal computer (PC) hardware products.

Confidence Margins
Strong resistance  $29.75 (+15% )
Light resistance  $26.40 (+2%)
Light support  $23.80 (-8%)
Strong support  $23.40 (-10%)

As a major player, the company has been severely punished by the market. Most investors expect it to perform very badly on their next earnings report.

Entry and Exit Strategy
The performance will greatly depend on their next earnings report; make sure to open a position before it is issued.

For the cautious investor:
Buy the stock for 25.90$ or less.

For the risk-taking trader:
Buy 27$ November 2010 out of the money call options for about 13$ a contract.

For the cautious investor:
Sell when the stock reaches 26.40$, or keep it until 29.50$ if you are very bullish.

For the risk-taking trader:
Time being a major factor in this trade; try to sell the contracts in the days following the earnings report to lock in your profits before the expiration of those contracts as the proximity of that date has a major effect on their price.

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