This article is dedicated to the biggest holding in my portfolio, and the stock that I believe offers the best value currently - Microsoft (MSFT, Financial).
The company needs no introduction - they are the makers of hugely successful products such as Microsoft Office and Windows. Honorable mentions such as the Xbox. And less successful products such as Zune and - for now - everything related to mobile.
Microsoft earns a ton of money; they buy back shares at a breathtaking pace and continuously bump their dividend and ROA, ROE and ROI ratios consistently above 20%. During the span of the last 10 years they have increased FCF, EPS, cash, EBITDA by around 100 %. In spite of this they are trading below 10x earnings, and seem to have become somewhat of a Dog of the Dow.
Unless you are a real hard assets guy, looking only for net-nets, I'll say Microsoft offers tremendous value for the patient investor. (Patience in this case meaning 5-plus years.)
The interesting thing is why Microsoft trades at this level. What makes this a contratrian play? Do the arguments hold up, am I missing something, will Microsoft stay cheap forever? (A bargain is not a bargain if it remains cheap.)
My views, and the view apparently taken on Wall Street, diverge on the following points:
Conclusion: MSFT is a strong buy.
Comments or questions? Feel free to email me at [email protected]
The company needs no introduction - they are the makers of hugely successful products such as Microsoft Office and Windows. Honorable mentions such as the Xbox. And less successful products such as Zune and - for now - everything related to mobile.
Microsoft earns a ton of money; they buy back shares at a breathtaking pace and continuously bump their dividend and ROA, ROE and ROI ratios consistently above 20%. During the span of the last 10 years they have increased FCF, EPS, cash, EBITDA by around 100 %. In spite of this they are trading below 10x earnings, and seem to have become somewhat of a Dog of the Dow.
Unless you are a real hard assets guy, looking only for net-nets, I'll say Microsoft offers tremendous value for the patient investor. (Patience in this case meaning 5-plus years.)
The interesting thing is why Microsoft trades at this level. What makes this a contratrian play? Do the arguments hold up, am I missing something, will Microsoft stay cheap forever? (A bargain is not a bargain if it remains cheap.)
My views, and the view apparently taken on Wall Street, diverge on the following points:
- MSFT is dead money. The stock price hasn't moved considerably for the last decade - that's long enough to make even very patient investors, let alone analysts and hedge fund managers, lose interest in the company.
- They haven't invented anything of significance since the Xbox, and that is not a major factor in their earnings.
- They seem to be losing the mobile/tablet race by a wide margin.
- Steve Ballmer is about as popular on Wall Street as Dave Sokol is in Omaha.
Conclusion: MSFT is a strong buy.
Comments or questions? Feel free to email me at [email protected]
