Microsoft Could Change Smartphones Forever with Skype

When making his call for InvestorPlace.com 's 10 Best Stocks for 2011 a year
ago, James Altucher picked "A tiny company called Microsoft (NASDAQ: MSFT
)." James goes back to the well again in 2012 with the same call for this
year's feature. In his previous write-up 12 months ago, James picked Microsoft
because it had: A forward price-to-earnings ratio of less than 8 (less cash),
signaling bargain valuation. A $40 billion stock buyback plan to boost
shareholder value. More than $30 billion in cash in the bank at MSFT, and
predictable revenue. Hopes for the Kinect controller for Xbox catching on, and
emerging-market IT sales boosting profits. Many of those reasons remain. The
forward P/E as of this writing is about 8.5. The $40 billion stock buyback plan
remains in effect through 2013 and in mid-2011, an unnamed investment manager
urged Microsoft's board to get even more aggressive with repurchasing shares.
Cash and short-term investments total more than $50 billion. And the Kinect
indeed was a hit, moving 10 million units in about three months at the beginning
of the year. Microsoft didn't quite have a breakout year in emerging markets.
Lowball pricing and widespread piracy makes that difficult. In the past, MS
Office sold for as low as $29 in China because of these pressures. But the
potential still is there if MSFT can figure it out. As for new reasons: James
Altucher likes the secret weapon that is Skype. After Microsoft's $8.5 billion
buyout of the video conferencing and VoIP company, many talked about how it was
a defensive move to fend off tech rivals Google (NASDAQ: GOOG ) and Facebook
even if MSFT couldn't use Skype itself. Others thought it would be a play on
the enterprise space, integrating video conferencing to MS Office as a way to
adapt to the 21st century business environment. But James says it's more than
that. In his words, "Skype replaces all smart phones within next five
years." It's true that voice is increasingly an afterthought to wireless
providers like Sprint (NYSE: S ), AT&T (NYSE: T ) and Verizon (NYSE: VZ ). The
war for mobile subscribers is won on data plans. And if Skype can use those data
plans to dominate the phone segment of the smartphone business well, that's
quite a game changer. All the better if Windows can do it on its own Windows
Phone platforms and offer a seamless experience that gives Android and Apple
(NASDAQ: AAPL ) iPhones a run for their money. The icing on the cake is
Microsoft's move to increase dividend payouts in the last year or so. At the
end of 2010, MSFT paid 13 cents per share each quarter a roughly 2% yield. Now
it's dishing out 20 cents a share for a 3% yield. Not bad. James Altucher has
written for The Wall Street Journal