Microsoft seems cheap

[Hamlet]

I've owned a little MSFT for years. They've been quietly earning a little more each year, but their stock price has not kept pace.

In their earnings report recently, they posted what are IMO pretty strong earnings, but they got hit pretty good. They provided guidance for next year that has them earning about 2.15/share. They rarely miss their guidance. Given today's price, that gives them a forward PE of just over 13.

This seems insanely cheap given that Microsoft basically has a giant money printing press. Sure, the YHOO deal is a bad move, but this still seems too cheap.

Does anyone actually think that MSFT's earnings growth potential is less than the average S&P company?

 

[al_bundy]

value trap, and the earnings growth is down since last year

Vista is dead. even HP and Dell are invoking the downgrade rights in their contracts to keep XP alive. I use Vista and don't think it's bad, but a lot of people hate it and seems to be another Me.

the biggest risk to MS is cloud computing that Google has quietly built up over the last few years and now Amazon is into it. What Google is doing is setting up low end office apps on the internet and giving developers and API to develop low end apps to run on Google's cloud so that small businesses can buy a few cheapo PC's instead of server software from MS.

MS is getting into it as well and I think it's more of a fad and a buzz word for now, but if done right it can shake up the economics of small business computing. and the low end is the start point to go high end into the enterprise

 

[BoutDone]

MSFT is dead money. Geez, they were at 30 in 2001. Yeah they pay small dividends but, what fun is that? Too big, too much cash, no new products of value, no reinvention aka Apple. Dead money!

A cheap MSFT is 20. Even at that you will need tons of patience.

 

[ERD50]

Investors are looking for a growth story. Where is growth going to come from?

-ERD50

 

[Running_Man]

My personal opinion is the MSFT stock would do much better if they would just reinvent themselves as a dividend company and pay off as dividends their excess cash flow. While their operating margins are declining they are still outstanding and both their earnings and their sales per share are 400% of ten years ago increasing every year with no downturns while the stock price is flat. From a PE of 50 to a PE of 15 valuation is no longer the primary concern for Microsoft. Value line is estimating 18% per year dividend increases for the next 4 years and I see no reason to doubt that. They have shown the ability as a corporation to continue to grow their sales and earnings and until concrete signs show they have stopped why assume they will? The PE is discounting future growth quite a bit.

Along with GE and Intel these stocks were the poster children for the large cap portfolio hogs they were that then got hit by the overpopularity of the S&P500 index funds. Microsoft at this point would be my third pick as an overperformer for the market of the DJIA stocks along with KO(1) and WM(2). If a downdraft would hit the market with enough force to bring the dividend close to 2 percent (22-24) I would gladly make Microsoft an addition to my portfolio.

 

[ERD50]

Wait until every news article about them uses the word 'beleaguered' as an adjective, and your mail-carrier, checkout person at the grocery store, and barber all thinks they are going bankrupt. That might be a good time to buy.


-ERD50

 

[Hamlet]

They've been growing for the last several years.

At this price they don't need growth. They can just buy back stock and increase the dividend.

Investors are looking for a growth story. Where is growth going to come from?

-ERD50

 

[haha]

Investors are looking for a growth story. Where is growth going to come from?

-ERD50

As Warren Buffet is fond of pointing out, in a well managed company ROI and ROE is what counts, not growth which can be fickle and cash absorbing.

Ha

 

[ERD50]

As Warren Buffet is fond of pointing out, in a well managed company ROI and ROE is what counts, not growth which can be fickle and cash absorbing.

Ha

Not every investor (institutional and/or private) is Warren Buffet. Maybe growth (in and of itself) is not that important, but I still think that at least the perception that there is a limited growth prospect for MSFT is holding down the stock price.

As I've learned, while holding stocks that I felt just *had* to increase based on their fundamentals, perception can be everything.

-ERD50

 

[Art G]

MSFT has been mediocre since the day they put it into the Dow. I'd want to see it get above and sustain $30.25 before I'd buy into it. Even then, I'm just not hopeful. I'd rather buy Intel if I had to own one of the dinosaur computer companies (can a computer company be classified as a dinorsaur yet?).

 

[Hamlet]

Long-term, their stock price being held down is a good thing, since I expect a large part of their future appreciation to come from their stock buybacks.

Honestly, though, people who think MSFT doesn't have good growth prospects needs to look at their 10K, not their stock price.

2007 2006 2005 2004 2003
$ 51,122 $ 44,282 $ 39,788 $ 36,835 $ 32,187 Revenue Operating income
18,524 16,472 14,561 9,034 9,545 Operating income Net income
14,065 12,599 12,254 8,168 7,531 Net income Diluted earnings per share
$ 1.42 $ 1.20 $ 1.12 $ 0.75 $ 0.69 Diluted earnings per share Cash dividends declared per share
$ 0.40 $ 0.35 $ 3.40 $ 0.16 $ 0.08 Cash dividends declared per share


They've grown just fine. They just started too expensive.

Not every investor (institutional and/or private) is Warren Buffet. Maybe growth (in and of itself) is not that important, but I still think that at least the perception that there is a limited growth prospect for MSFT is holding down the stock price.

As I've learned, while holding stocks that I felt just *had* to increase based on their fundamentals, perception can be everything.

-ERD50

 

[al_bundy]

Home Depot also grew in the last few year and their stock price suffered because they lost marketshare to Lowe's

MSFT is losing marketshare as well in the online space

long term i think in a few years they will probably go into another hypergrowth cycle. kind of like GE did after Jack Welch took over. Except with MSFT they need to get rid of some of the old guard that is defending the old cash cows.

 

[ERD50]

Honestly, though, people who think MSFT doesn't have good growth prospects needs to look at their 10K, not their stock price.

2007 2006 2005 2004 2003
$ 51,122 $ 44,282 $ 39,788 $ 36,835 $ 32,187 Revenue Operating income
18,524 16,472 14,561 9,034 9,545 Operating income Net income
14,065 12,599 12,254 8,168 7,531 Net income Diluted earnings per share
$ 1.42 $ 1.20 $ 1.12 $ 0.75 $ 0.69 Diluted earnings per share Cash dividends declared per share
$ 0.40 $ 0.35 $ 3.40 $ 0.16 $ 0.08 Cash dividends declared per share


They've grown just fine. They just started too expensive.

I think you have it right. They have had good growth, but the stock price from a few years back was probably looking for even more growth (again - perceived, maybe not actual).

-ERD50

 

[BoutDone]

As Warren Buffet is fond of pointing out, in a well managed company ROI and ROE is what counts, not growth which can be fickle and cash absorbing.

Ha

Buffet is right - ROI & ROE count a whole lot. The problem, as it is with MSFT, is when a company has a lot of cash generation and they cannot get sufficient returns on that cash. They start to try to get investors attracted in other ways - dividends.

Nothing against those who like dividends - you just can not expect the share price to grow unless the company can reinvest their cash and get a sufficient return.

 

[Hamlet]

I think Home Depot suffered mostly because it had reached a PE of about 50. Same problem Walmart had until recently. These companies just got too expensive during the stock market madness.

They are not too expensive now.

Note- Home Depot also happened to have management with total contempt for its shareholders. I much prefer Lowe's. However, at current prices I think it will be hard to lose money with any of them if you can wait 5 years.

Home Depot also grew in the last few year and their stock price suffered because they lost marketshare to Lowe's

MSFT is losing marketshare as well in the online space

long term i think in a few years they will probably go into another hypergrowth cycle. kind of like GE did after Jack Welch took over. Except with MSFT they need to get rid of some of the old guard that is defending the old cash cows.

 

[kumquat]

They start to try to get investors attracted in other ways - dividends.

Nothing against those who like dividends - you just can not expect the share price to grow unless the company can reinvest their cash and get a sufficient return.

Especially if the dividends are not growing and are based on revenues from an unpopular product that finally has a creditable alternative (Linux).

 

[al_bundy]

is that a joke that linux is a credible alternative to Windows? it's great in things like stand alone applicances and a few enterprise level applications, but not on the desktop

why aren't people grabbing ubuntu PC's at best buy or wal mart?

 

[ERD50]

is that a joke that linux is a credible alternative to Windows? it's great in things like stand alone applicances and a few enterprise level applications, but not on the desktop

why aren't people grabbing ubuntu PC's at best buy or wal mart?

Here's a hint:

Microsoft will sell $3 software to developing countries - Engadget

-ERD50

 

[al_bundy]

didn't say linux is useless, just that it's not a credible alternative yet

i can do a lot of basic things with Ubuntu or any other linux distro, but i can do more things better with Windows XP or Vista. play games, edit photos, edit movies, keep my itunes collection, windows supports a lot more hardware and it's more user friendly. Google is going after the developing world with it's cloud computing model to put as many services on the internet as possible, but people will still need fat PC clients in the future. unless i can get at least 1TB of storage somewhere and bandwidth to access it like i'm on a local network anywhere i go

linux needs a better installer like windows has and better driver support. for the last 7 years sites like slashdot and other linux cult sites have been predicting how windows will fall from grace and linux will overtake it.

 

[ERD50]

True, far from ready for prime time, but it seems to keep making (small) inroads. - ERD50

 

[Hamlet]

When I see large enterprise customers start using a competing product, I'll worry about Windows.

I could make a strong case for an enterprise to switch to Macs on the user desktops. You can do everything most businesses need, and the support costs would be much, much less.

So far though, almost nobody has done it.

True, far from ready for prime time, but it seems to keep making (small) inroads. - ERD50

 

[al_bundy]

does OSX server ship with a pre-configured LDAP authentication scheme?

windows server ships with active directory which is LDAP but has all the classes and everything built in so only thing you do is create the users. and most of the new MS server apps extend active directory for easy management. i know there is OpenLDAP, but you have to create the schema

 

[ERD50]

I could make a strong case for an enterprise to switch to Macs on the user desktops. You can do everything most businesses need, and the support costs would be much, much less.

Why do you say costs would be much, much less?

does OSX server ship with a pre-configured LDAP authentication scheme?

windows server ships with active directory which is LDAP but has all the classes and everything built in so only thing you do is create the users. and most of the new MS server apps extend active directory for easy management. i know there is OpenLDAP, but you have to create the schema

Here's a description of implementing LDAP.

Mac OS X LDAP Authorization Setup for Tiger (Mac OS X 10.4.x)

I know very little about it, but it looks straight forward, so I am curious - how does this compare to windows?

-ERD50

 

[Hamlet]

Because supporting Macs is going to require less work.

How often do Macs need to be re-imaged? Less than PCs

How often do Macs get viruses? Less than PCs

The simplification of having one hardware vendor would make support much cheaper as well.

Why do you say costs would be much, much less?

 

[Delawaredave5]

is that a joke that linux is a credible alternative to Windows? it's great in things like stand alone applicances and a few enterprise level applications, but not on the desktop

why aren't people grabbing ubuntu PC's at best buy or wal mart?

I loaded Ubuntu on a PC. It runs great on old hardware - so I use it on a couple old procesors.

Even though Vista is a failure, Linux still "isn't ready for prime time" on corporate or general home desktops. A company would be nuts to try to save a couple hundred bucks per employee and put up with Linux.

I agree Microsoft is no longer a growth stock - but the operating system business will be an incredible "cash cow" for many years to come.