The risk/reward of this stock is quite compelling. Downside risk is low as the valuation already implies a permanent 54% decline in profits. How much worse can the valuation get? Upside reward potential is strong as the stock has to go over $77/share to trade at a value that implies the company’s profits will experience a 0% decline, still a no-growth scenario.
MSFT released better than expected earnings and is up 8.3% since it was named the Stock Pick of the Week on October 28, 2010. Overt the same time period, the S&P 500 is up only 3.6%.