Value investors have been pounding the table on Microsoft (MSFT) for quite a while now. In 2011, the highlight was when value investor David Einhorn, at the Ira Sohn Conference in May, called for for Steve Ballmer to be ousted as CEO at Microsoft. Yet despite a lot of talk about tablets, the cloud and the future of Windows, the overall result was another disappointing year for Microsoft’s stock price: In 2011, it fell roughly 7%, compared to a flat market for the S&P and a 5.5% gain for the Dow.
2012, on the other hand, has started off with a bang, and brought some long-awaited stock price appreciation for patient investors. In the first week of the New Year, the S&P and Dow gained 1.6% and 1.2%, respectively, compared to a jump of more than 8% in MSFT.
One possible explanation is a change in analyst perception, with Credit Suisse issuing a report with a positive outlook for the future of Microsoft’s partnership in mobile with Nokia. "We fundamentally believe that Nokia's focus on Windows will allow [Nokia] to drive a recovery through 2012 in both its top-line and earnings," Credit Suisse wireless analyst Kulbinder Garcha wrote in a note to clients, including an upgrade for Nokia. As expected, Nokia & Microsoft have plans to invest significant amounts of cash in promoting the new phones ($200 million), with payments to sales rep expected to start mitigating the promotion of Android and Apple products.
With 2012 upon us, the catalysts for appreciation in Microsoft’s share price are abundant: the release of Windows 8, the potential to gain share in mobile, the continue drive in Bing share gains, and the possible retirement of Steve Ballmer after the release of Windows 8 (as has been rumored); for Microsoft investors, the first week of trading was hopefully just a preview of a successful year ahead.
About the author:
As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, "Patience followed by pretty aggressive conduct."
I run a concentrated portfolio, with a handful of positions accounting for the majority of my equity holdings (currently two). From the perspective of a businessman, I believe this is adequate diversification.