Talking Numbers

Why Microsoft might be poised for a huge run

Microsoft might be poised for huge run

Paul Allen just saw his Seattle Seahawks crush the Denver Broncos in the Super Bowl. Meanwhile, Microsoft, the company he cofounded with Bill Gates, is said to be close to moving one of its star player to the top slot.

Satya Nadella, the head of Microsoft's Cloud and Enterprise division, is reportedly on the cusp of becoming the company's third CEO. Investors are asking if Nadella will be as strong as the Seahawk's defense of if he'll be another Peyton Manning – a phenomenal player unable to beat the competition when it matters most.

(Watch: Microsoft's c-suite drama heightens)

According to John Stephenson, portfolio manager at First Asset Investment Management, the company Nadella may be inheriting has a lot of things going against it.

"I think it's a mild positive," says Stephenson of Nadella potentially taking the company's leadership. "But, honestly, it wouldn't change my overall view of Microsoft."

Microsoft's biggest problem is one of its core lines of business, says Stephenson.

"It's far too PC-centric and PC sales are in the decline," says Stephenson. "There are no evident catalysts."
According to data by Gartner, PC shipments were down 10% in 2013 to just under 316 million units. Stephenson also sees Microsoft's decision to acquire Nokia's devices and services business as "a huge gamble".

"Microsoft's own mobile applications are only 3.5% of the market," says Stephenson. "This is a company that just struggles to find its way forward. Cheap? Yes, but no reason to own it."

(Read: Microsoft new CEO forecast: Decidedly 'cloudy')

While Stephenson sees no fundamental catalyst, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says there are technical catalysts that may propel the stock higher. One of the main catalysts for Ross is the stock's relative strength compared to its fellow Dow Jones Industrial Average components.

"Microsoft [is] the fifth-best performing stock in the Dow, down roughly 1% on a year-to-date basis with the benchmark index down over 6%," says Ross.

Other reasons Ross like Microsoft's chart include the stock's ability to stay above its 150-day moving average and its breakout above what Ross sees as a downward sloping trend channel. But, Ross also believes that should Microsoft shares break above a 14-year resistance level, the stock will go up significantly higher.

"If we can break through that key resistance at $37.50," says Ross, there will be "a lot of upside here for this stock."

To see the rest of the discussion on what's next for Microsoft with Stephenson on the fundamentals and Ross on the technicals, watch the video above.

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