Take Your Position: Microsoft

With only hours until Microsoft releases earnings, how should you position into -- and in the wake of -- the report?

Nuts & Bolts

Analysts expect Microsoft's profit and revenue to be much stronger than a year ago, as businesses spend more on technology again amid improving economic growth, and as Microsoft's newest versions of Windows and Office are snapped up by an increasing number of people.

But PC shipments weren't as strong as researchers expected during July through September, as the success of Apple Inc.'s iPad seemed to be causing some consumers to put off buying a new laptop.

The results, however, won't reflect the recent launch of Microsoft's new smart phone software, which won't be available until November. Another possible sales driver, the Kinect controller for Xbox 360, also hasn't gone on sale yet.

The Takeaway

Microsoft needs to prove its core businesses — PC operating systems, Office productivity software, servers and tools for developers — are chugging along at a healthy rate.

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Investors are paying an increasing amount of attention to Microsoft's non-PC business, and concerns are mounting over slow improvement in search traffic, Microsoft's latecomer status in smart phones and the lack of Windows tablets on the market to compete with the iPad.

By the Numbers

Analysts surveyed by Thomson Reuters forecast net income of 55 cents per share on $15.8 billion in revenue.

What’s the trade?

I think the stock is cheap, says UBS analyst Brent Thill and the fundamental enterprise business is strong.

I agree that the stock is cheap but there’s no culture of innovation at Microsoft, says Anthony Scaramucci. That's a problem.

Until we know more about what Microsoft is doing to compete, I’d stay on the sidelines, says Joe Terranova.

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Trader disclosure: On Oct. 27, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Scaramucci and SkyBridge Capital own (AAPL); Scaramucci and SkyBridge Capital own (BAC);Scaramucci and SkyBridge Capital own (XOM); Scaramucci and SkyBridge Capital own U.S. Dollars; Finerman owns (AAPL); Finerman & Finerman’s Firm owns (BAC); Finerman’s Firm owns (BKS); Finerman’s Firm owns (FLS); Finerman’s Firm owns (MSFT); Finerman’s Firm owns (POT) options; Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Pete Najarian owns (AKAM) call spread; Pete Najarian owns (BAC); Pete Najarian owns (POT) call spread; Terranova owns (APA), (AAPL), (AXP), (C), (CRM), (FCX), (GOOG), (GS), (IBM), (ISRG), (JPM), (MCD), (MDT), (MMM), (NBR), (NKE), (ORCL), (PEP), (PCP), (TBT), (TLT), (UPL), (VRTS), (XBI)

For Joe Terranova
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For Brian Kelly
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For Jan Van Eck
Van Eck is a principle in firm that is sponsoring the Rare Earth/Strategic Metals ETF

For Brent Thill
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(MSFT) within the past 12 months has been an investment banking client of UBS
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For Mike Khouw
Cantor Fitzgerald makes a market in (CSTR)
Cantor Fitzgerald is long (CSTR) calendar spreads

For Jeff Saut
***No Disclosures***

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