This Value Stock Will Benefit From Increased IT Spending in 2013
Jan 9th 2013 8:00PM
Updated Jan 9th 2013 8:06PM
Microsoft (NAS: MSFT) isn't the only IT company waiting for businesses to break out their checkbooks. Business spending on IT-related products and services has been on hold for some time, as edgy companies -- big and small -- faced an uncertain global economic outlook for the past several years.
But the negative outlook for business spending should change, according to a new study by Gartner. We should see a turnaround in IT spending in the coming year, increasing to a total of $3.7 trillion worldwide. The improvement in business spending on devices, data centers, enterprise software, and IT and telecom services will be the result of a change in sentiment, according to the study. The Gartner analysts put it this way, "... much of this [global economic] uncertainty is nearing resolution, and as it does, we look for accelerated spending growth in 2013 compared to 2012." Great news for the IT industry in general, and Microsoft in particular.
Microsoft already off to a nice 2013
With its recently released Windows 8, one of Microsoft's first significant OS updates in years, news surrounding smartphones running Windows 8 and its surface tablet are all the rage. The hoopla surrounding Microsoft's hardware solutions shouldn't come as a surprise -- it's entirely new ground for the software pioneer. But as IT industry spending increases, so too will the realization that Microsoft has a variety of new and established software, services, and enterprise-related tools ready and waiting to take advantage of the upturn.
As an enterprise provider, Microsoft has long been one of the key players in the industry. Competition from IBM (NYS: IBM) is nothing new in the enterprise space, but Microsoft's software solutions are a differentiator. To its credit, IBM (along with other industry heavyweights) continues to better position itself for the future of IT: enterprise software and applications and cloud computing solutions. Microsoft, with its basis in software, is simply further along the path and stands to benefit even more heading into 2013.
As my Fool associate Steve Heller noted a couple of days ago, Microsoft's new $617 million Windows 8 contract with the Department of Defense is huge for a couple of reasons. First, $617 million is $617 million. Second, not surprisingly, the DOD security protocols are stringent, to say the least. Landing a departmentwide contract for Windows 8 is a ringing endorsement for prospective cloud and/or enterprise customers considering the new OS.
The DOD contract comes on the heels of the city of Chicago incorporating its new cloud-based Office 365 solution, in lieu of similar offerings from one of Microsoft's key competitors in the market, including longtime nemesis Google (NAS: GOOG) . To be sure, the Chicago deal won't be the last time these two growing enterprise players will butt heads and target the same clients. Google Apps certainly isn't going away, and it, too, will benefit from IT spending growth in 2013.
Today's announcement that U.K. retailer Tesco has also climbed aboard the Office 365 cloud train is yet another feather in Microsoft's cap. It has long been a leader in enterprise services, but early adoption of cloud computing, coupled with Microsoft's updated solutions, is already paying dividends for the Redmond, Wa., behemoth. And now, Gartner says IT spending will increase? Microsoft shareholders, and investors in search of value, should love the sound of that.
Gartner's IT spending expectations and early adoption by some key clients of new cloud, enterprise, and operating system services all bode well for a return to prominence for Microsoft in 2013, and, boy, are shareholders ready. After a nearly 4% decline in share price for the past year, Microsoft had done little to excite the market, which is exactly what makes it ideal for today's value hunters.
Other than the aforementioned IBM, Microsoft has one of the lowest trailing earnings ratios (currently sitting at 14.4) in its industry. Now add in a forward P/E of 8.3, almost $67 billion in cash, and a stellar 3.45% dividend, and you'd be hard-pressed to find a better value and income investment than Microsoft right now.
As if Microsoft's value and income weren't enough, consider this: Of Gartner's expected IT spending in 2013, $1.25 trillion of the $3.7 trillion total will come from enterprise software and IT services, with year-over-year growth of 6.4% and 5.2%, respectively. Both of those markets -- enterprise and IT services -- are right up Microsoft's wheelhouse. Surface tablets, Windows phones, servers, and the host of other Microsoft offerings? All just icing on what should be a tasty, Microsoft cake in 2013.
The article This Value Stock Will Benefit From Increased IT Spending in 2013 originally appeared on Fool.com.Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google, IBM, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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