From Dan Ferris in the S&A Digest:

I was thinking about Microsoft today, after doing a podcast interview with S&A's Frank Curzio this morning. Both Frank and I are bullish on current prices.

Microsoft reported free cash flow of $22 billion for its 2010 fiscal year, which ended on June 30, 2010. Once you strip out its net cash position, Microsoft's earnings power trades at less than nine times free cash flow.

Microsoft shouldn't even exist. It's been around for decades and it's a huge company. Yet it still earns super-thick profit margins. Back in Economics 101, we learned thick profit margins attract price competition, causing margins to narrow. But not Microsoft's.

Microsoft earns the lion's share of the profits in the PC industry... Microsoft's net income is four times that of Intel, and Intel dominates its market with an 80% global share of the microprocessor industry.

I'm not here to philosophize about how Microsoft got so dominant or how it maintains thick margins. All we need to know is that it rules the roost. I can understand Mr. Market asking, "How can this be?" But Mr. Market is missing the point.

You want safe? Microsoft has one of the few triple-A balance sheets left in the world, with over $36 billion in cash and just $5.9 billion in debt. There's virtually zero financial risk. You want a great business? Our friend Glenn Tongue of hedge fund T2 Partners calls Microsoft "the most cash generative business in the world," and I agree. You want cheap? Microsoft at less than nine times free cash flow is so obvious, so in your face, such a no-brainer right now... it's like a bond yielding 9.7%, with interest that grows.

And of course, every time I write about Microsoft, I get e-mails telling me how stupid I am and how awful the company is. There's no more bullish sentiment than pure revulsion. Microsoft could be the safest, cheapest stock in the world right now... but nobody seems to want it. Well, almost nobody...

Microsoft is one of an elite group of high-quality U.S. stocks that more and more professional investors and advisors are becoming bullish on today. Jeremy Grantham of investment group GMO says high-quality U.S. stocks are now priced to provide better returns over the next seven years than small- and large-cap U.S. and international stocks, bonds of every stripe, and managed timber.

According to Grantham, the only thing set to outperform high-quality U.S. stocks over the next seven years is emerging-market stocks. Grantham predicts 9.1% per year average annual real returns from high-quality U.S. stocks and 10.3% a year from emerging markets. I bet you're taking more risk to get 10.3% in emerging markets than to get 9.1% from high-quality U.S. stocks.

More recently, Barton Biggs from investment advisory firm Traxis Partners said in a Bloomberg interview high-quality U.S. stocks are the most attractive bargain around today. No fewer than five S&A editors, not including me, have recently recommended positions in large, high-quality U.S. stocks.

That's why I keep repeating myself ad nauseam here in The Digest. I don't want to irritate anyone, but I have a job to do. And I really, truly believe deep down in my soul that if you don't own the high-quality stocks – the World Dominators I cover in Extreme Value – you're going to lose money, or at least fail to make any, over the next several years.

You will get killed in bonds and in most stocks. But not the World Dominators. They're going to take care of you. They rarely get this cheap. When they do, you should buy them and hold them.

Right now, four of my World Dominator picks are cheap enough to buy. Microsoft is obviously one of them. If you want to know what the other three are (and I promise you definitely want to know), sign up for Extreme Value. If you're tired of hearing about this, I hope it's because you already own these stocks. If you don't already own them, I have tons of work to do and miles to go before I put this idea to bed.

Crux Note: To access Extreme Value, click here.

More from Dan Ferris:

Dan Ferris: The only investment you never have to worry about

Dan Ferris: A one-of-a-kind farmland investment anyone can buy

Dan Ferris: What no one else will tell you about Thursday's crash