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Why value model portfolios love Microsoft

People visit the Microsoft booth at the 2013 Computex exhibition at the TWTC Nangang exhibition hall in Taipei in this June 4, 2013 file photo.

PICHI CHUANG/REUTERS

Validea's pick of the week provides a detailed report on a company that scores well in the stock-screening service's model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor has a distribution agreement with Validea.ca. Try it.

One of the largest companies in the world, Microsoft Corp. has raked in more than $83-billion (U.S.) in sales over past 12 months. Market cap for the software giant is $303-billion.

Microsoft has increased EPS in all but two years of the past decade, one reason it gets strong interest from the Warren Buffett-inspired model.

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It has averaged a 32.4-per-cent return on equity over the past decade, a sign of the "durable competitive advantage" Buffett is known to seek and more than twice the Buffett model's 15-per-cent target.

Microsoft has $22.8-billion in annual earnings, with which it could pay off its $20.7-billion in long-term debt in less than a year if need be, which the Buffett model considers exceptional.

The stock trades at a reasonable 13.5 times earnings. Cash flow of $3.26 per share more than doubles the market mean of $1.60, one reason it gets strong interest from the James O'Shaughnessy-based value model. And the company has a 3.1-per-cent dividend yield, which the O'Shaughnessy model also likes.

Microsoft has more net current assets ($73-billion) than long-term debt ($21-billion), which the Benjamin Graham-based model likes. And it has a 3.7 current ratio, another sign of a strong balance sheet.

John Reese does not own MSFT.

Click here for a complete breakdown of Validea's investing guru report.

Read other research reports here.

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