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Upgrade sparks Microsoft shares

Microsoft shares showed some life Wednesday, scampering up 4 9/16, or 6 percent, to 79 1/2 after CIBC World Markets upgraded the stock from a "hold" recommendation to a "buy."

Analyst Melissa Eisenstat set a 12-month price target of $89 a share, saying that "investors will focus more on its Windows 2000 product cycle" and less on its ongoing antitrust trial with the Justice Department.

Could this be the beginning of a resurgence for the most closely watched technology stock on Wall Street?

Considering that Microsoft (Nasdaq: MSFT) shares have improved 32 percent from a 52-week low of 60 3/8 set in late May, some would argue that the worst is over for the software giant.

Putting aside its legal complications for a moment, there's good reason for optimism if you're a Microsoft shareholder.

Trading at price-to-earnings valuation of 44, Microsoft is downright cheap by technology bellwether standards.

Sure, it disappointed investors in its third quarter when it recorded sales of only $5.66 billion. But it still managed to earn $2.39 billion, or 43 cents a share, despite all the distractions swirling around it.

Investors also might want to put its predictably cautious outlook in perspective. When was the last time Microsoft boldly predicted a blowout quarter? And how many times has it delivered one?

First Call Corp. consensus sees Microsoft earning 42 cents a share in its fourth quarter. If Windows 2000 sales kick in as many analysts are predicting, it could easily top that figure by a couple cents a share.

Chief Financial Officer John Connors also pointed out that Microsoft will have a difficult time improving on the fourth quarter sales of last year when it rolled out the popular Office 2000 offering.

Also, some customers were waiting for Windows 2000 service pack 1, which has only become available this month.

Adding up these factors, and steady if unspectacular business and consumer PC sales, it all sets up well for an upside surprise this quarter.

Microsoft shares hit a 52-week high of 119 15/16 in December.

Twenty-six of the 29 analysts following the stock rate it either a "buy" or "strong buy."