Is Microsoft a Good Portfolio Play?

With shares of Microsoft (NASDAQ:MSFT) trading around $39, is MSFT an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Microsoft is engaged in developing, licensing, and supporting a wide range of software products and services. The company also designs and sells hardware and delivers online advertising to customers. It operates in five segments: Windows and Windows Live, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices. As a mature company, Microsoft is also offering a stable dividend, which is currently yielding around 3.32 percent annually.

When you’re falling behind the competition, what do you do? If you’re Microsoft and you see that Sony’s (NYSE:SNE) PlayStation 4 is outselling the Xbox One month after month, you need to do something bold. That’s just what Microsoft did earlier this week when it announced a cheaper version of the console that doesn’t include a Kinect peripheral. The company has just followed up by announcing more details about its most highly anticipated game, the next Halo. In a post on Microsoft’s website Friday morning, developer 343 Industries revealed that the next installment of the popular series will be called Halo 5: Guardians. The game is set to release exclusively for Xbox One in fall 2015.

T = Technicals on the Stock Chart Are Mixed

Microsoft stock has been pulling back in recent times. The stock stock is currently trading sideways and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Microsoft is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Microsoft options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Microsoft options




What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options



July Options



As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.