NEW BULLISH Plays

Microsoft Corp. - MSFT - close: 41.23 change: +0.65

Stop Loss: 39.45
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 14, 2014
Time Frame: 10 to 12 weeks
Average Daily Volume = 23 million
New Positions: Yes, see below

Company Description

Why We Like It:
It's back to the future with old-tech heavyweights making progress on Friday. Semiconductor giant Intel (INTC) surprised the market with an announcement Thursday night. INTC raised their revenue guidance due to stronger PC sales. That's right, they said stronger PC sales. Intel chips are in about 80% of the world's PCs. Unfortunately the PC has been declared dead for years due to the explosion of laptops, smartphones, and tablets. It is true that PC shipments have been falling for the last eight quarters in a row. IDC expects PC shipments to fall another -6% in 2014. If that's true then what's the story behind Intel's positive guidance? It might be Microsoft.

Microsoft ended support for its Windows XP operating system in April this year. No more support means they would no longer provide patches or virus updates to protect your system from hackers. With credit card data being stolen a constant threat for businesses the lack of support for XP has sparked an upgrade cycle, especially among corporations.

There does seem to be some disagreement on just how long and how big of an effect this upgrade cycle will last. Was it a one quarter bump or will it last throughout the rest of 2014? An FBR analyst estimates that 25% of the PCs connected to the Internet still run Windows XP. That is a very large number so the upgrade cycle for Microsoft could last a while. It could be bigger than expected too.

Not only are consumers and businesses going to upgrade their operating system from Windows XP to Windows 8 but they will most likely buy an upgraded copy of Microsoft Office. MSFT will likely sell a few more copies of SQL server as well.

The MSFT story is not just about software either. The company seems to be making in-roads into the healthcare sector with their Surface Pro 3 tablets. MSFT is also slugging it out with Sony in the game console wars. Consumers bought $3.6 billion in video games in the first quarter of 2014. MSFT's line up of games for its Xbox One looks pretty good following the annual E3 conference last week.

Technically shares of MSFT are in a long-term up trend and hitting 14-year highs. As an investor would you rather buy a 10-year bond with a 2.6% yield or MSFT with a 2.7% yield and good chance for price appreciation?

MSFT is currently hovering just below resistance near $41.65. I am suggesting a trigger to open bullish positions at $41.85. More conservative investors may want to wait for a rally past $42.00 before initiating positions.

Trigger @ $41.85

Suggested Position: buy MSFT stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the 2015 Jan $45 call (MSFT150117c45) current ask $1.03

Option Format: symbol-year-month-day-call-strike

Annotated chart:

Weekly chart: