Colin Gillis: Microsoft Still 'Quite a Good Name'

Shares of Microsoft slipped in extended trade after the software giant reported a dip in quarterly sales of its core Windows operating system; a data point that may confirm weakness in the larger PC market.

Despite the dip in the Windows, overall sales at Microsoft rose 13 percent to $16.4 billion, ahead of the $16.2 billion expected by analysts, helped by sales of Office and its Xbox game system.

Microsoft has sold a record-breaking 350 million licenses for its Windows 7 operating system since launching it 18 months ago, but demand appears to be waning in an uncertain economy.

By the numbers, Microsoft notched a 31 percent increase in fiscal third-quarter net profit, reporting net profit of $5.2 billion, or 61 cents per share, compared with $4 billion, or 45 cents per share, in the year-ago quarter. Five cents per share of that profit was attributed to a one-time tax benefit.

Excluding the tax benefit, profit met the 56 cents expected by Wall Street analysts, according to Thomson Reuters I/B/E/S.

How should you position now?

Anthony Scramucci doesn’t sound terribly optimistic. He compares Microsoft to a “low growth technology utility.” He says, with Apple gaining market share investors are hesitant to step into Microsoft. “It’s a value stock, that’s not grabbing the attention of value buyers.”

Trader Joe Terranova doesn’t see the needle moving at Microsoft, either. “The sentiment of the market right now suggests that investors want to be in growth names such as Apple.”

Colin Gillis of BGC is on the other side; he's cautiously bullish. He says, “for people who are interested in a stock that’s trading at 10 times and that’s growing earnings faster than revenue it’s still quite a good name.”

To support his outlook, Gillis points to an expected dividend increase when the board meets in September. Also he thinks Windows 8 could become a new catalyst when it hits the tape at the developers conference in September.


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CNBC.com with wires.