24/7 Wall St.

Goldman Sachs has one of the more premiere research shops for the bulge bracket firms on Wall Street and investors look to its "Conviction Buy List" with regularity.  It might not seem odd that Goldman Sachs added Microsoft (NASDAQ:MSFT) to its Americas Conviction Buy List on a regular day.  But when it is about a week before earnings and the day Intel and others are reporting it makes it very difficult not to wonder if the analyst didn’t get some insight that might not be available elsewhere.

Goldman Sachs’ note from analyst Sarah Friar says that it expects upside to Microsoft’s first quarter results based upon the numbers out of Halo 3, the aQuantive buyout, currency benefits, and new product cycles like Office 2007 and Windows Server 2008 driving what Goldman estimates at 12%+ growth into fiscal 2009.  Goldman Sachs also noted that the current valuation remains at a significant discount to the software group and in-line with S&P peers, while sentiment is "almost overwhelmingly negative."  The summary concludes that this will take the stock higher on a better quarter.

Another wild card here is that these notes are no longer from Rick Sherlund, the former Goldman Sachs analyst that was considered the honcho of all analysts that covered Microsoft.  Microsoft was removed from the Conviction Buy List back on April 10, 2007 and shares closed at $28.21 that day.  Shares are up 1.2% today at $30.42.  Estimates were already raised last week and Goldman Sachs has a $37 target for the stock.  It isn’t our take that the analyst got anything secret, but maybe some solid research came in ahead of these other tech earnings. There is either some performance chasing going on, or there is some strong insight here from investigative research.

• With a spin-off of Bungie Studios there may be more to look at.
• Cramer thinks that Microsoft may continue acquiring ad properties.
• Its last seen short interest….
• HealthVault is a move into healthcare.
• It is going deeper into virtualization.
• Would Microsoft buy Yahoo!?
• A post-Gates Microsoft?

Jon C. Ogg
October 16, 2007