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If You Absolutely Must Buy a Stock, Buy …

February 16, 2011 – by Richard Band

Stocks finally showed some tentative signs of profit-taking Tuesday. The Dow shed only 41 points, but smaller companies, which have skyrocketed lately, gave up more ground percentage-wise. The S&P 600 Small Cap Index, for example, dropped the equivalent of 131 Dow points.

However, the market is up today, especially small caps. There are just too many folks trying to escape zero money market rates, and that’s putting a bid under stocks. Still, it would be helpful (and healthy) if a couple of our favorite names were to drift back down into a more attractive buying range.

If you’re absolutely burning to buy something, among my top stock picks is Microsoft (NASDAQ: MSFT). Wall Street has reacted coolly to news that Mr. Softee will pay “billions” to get Nokia (NYSE: NOK) to adopt Windows Phone 7 as the exclusive operating system for the Finnish company’s smartphones.

But is it really so implausible that Windows Phone, embedded in Nokia’s hardware, could emerge as a real competitor to Apple’s (NASDAQ: AAPL) iPhone system and Google’s (NASDAQ: GOOG) Android? It seems to me there ought to be room for at least three major players in this market.

At any rate, the shares’ recent dip has trimmed Microsoft’s valuation to barely 10 times estimated calendar 2011 earnings. That’s less than most electric utilities! The stock is currently yielding 2.4%. Buy MSFT at $28 or less.