An example of a high quality equity which we have recently included in our portfolio is as follows:
The Geneva Group Model recently confirmed inclusion of Microsoft (MSFT) for another year in the model. MSFT gained 40% including dividends for the year from mid March, 2013 to mid March, 2014, doubling the 20% gain for the market index S&P 500 (SPX). Over the last 2 weeks, MSFT has gained an additional 8% vs. no gain for SPX. These outsized gains were obtainable due to the Model’s ability to identify stocks which are poised to outperform the market a priori, in addition to using a classic, time-honored “buy low” strategy.
MSFT in recent years has shown a notable ability to reinvent itself in order to maintain the success of the past as technology changes. This ability will insure that MSFT will continue to maintain it’s status as one of the most consistent revenue growers in the market. In fact, MSFT has been able to increase revenues in each and every year of it’s existence, with the only exception being the “Great Recession” year 2009, when revenue decreased a mere 0.6% from year 2008. MSFT successfully reinvents itself by evolutionary rather than revolutionary change, more recently by the introduction of it’s successful X-box consoles for gaming aficionados. MSFT has recently changed leadership at the top by the appointment of Satya Nadella, who is promptly leading efforts to strengthen the presence of MSFT in the cloud. The term “cloud” is in reference to cloud computing, which is a way to provide easy, scalable access to computing resources and IT services. MSFT will benefit from a combination of “Platform-as-a-service” (Paas) and “Software-as-a-service” (Saas) portions of the cloud, whereby the end user will be able to store and potentially use it’s ubiquitous Office products from anywhere.
Today MSFT disclosed a new version of it’s Office software for use on an iPad. Compared to it’s Windows and other products, Office has generally produced most of the profits for MSFT. It has been estimated that MSFT will be able to grow annual revenue by more than $1 billion for Office on the iPad (fiscal yr 2013 revenue was $77.8 billion). Much of this is expected to come from new sign ups of Office 365, which is an online version of Office that consumers and businesses rent and install on their computers, rather than buy. As MSFT continues to reinvent itself in an evolutionary way, investors and consumers alike will continue to benefit.