MSFT

[gokou3]

Will this finally re-rate MSFT?

 

Apple Crunched in Nasdaq Rebalance

http://online.wsj.com/article/SB10001424052748704587004576243231566493842.html

The Nasdaq-100 consists of the 100 largest nonfinancial stocks that trade on the Nasdaq and is the index tracked by the heavily traded QQQ exchange-traded fund and many other securities. The move matters to investors because more than $330 billion worth of assets track the index via exchange-traded funds, mutual funds, options and futures.

 

Nasdaq-100 weighting of MSFT to be increased by 4.9% points by May 2nd.. roughly $16B of indiscriminate buying (0.049*330)... or 7% of market cap in a short period.

 

 

[benhacker]

There is $330B indexed to the NAZ 100???

 

i'd like to see a source for that... more like 10% of that number.

 

Ben

 

 

[omagh]

No, but this might re-rate MSFT.

http://www.asymco.com/2011/04/14/first-quarter-pc-forecast-windows-down-2-macipad-up-250/

http://www.asymco.com/wp-content/uploads/2011/04/Screen-shot-2011-04-14-at-4-14-9.22.26-PM.png

Will this finally re-rate MSFT?

[Guest Bronco]

Joes - I just heard an interesting thought on CNBC. 

 

Will Softee develop an app for the Office products to run on Apple / Android / Honeycomb / etc...

 

Does this even make sense?  I guess right now I can review word/excel on my ipad.  Is there another opportunity?  Would I ever use my ipad to create these type of documents?  I love my ipad, but hell no.

 

Just brainstorming.

[Guest VAL9000]

Will Softee develop an app for the Office products to run on Apple / Android / Honeycomb / etc...

 

Does this even make sense?  I guess right now I can review word/excel on my ipad.  Is there another opportunity?  Would I ever use my ipad to create these type of documents?  I love my ipad, but hell no.

 

I'm going to go with yes - in some form or another.  Apple has iWork for the iPad, and Google just released Google Docs for Android.  Microsoft doesn't have much choice if this is what the customer wants.  They've made some inroads into delivering Office as a cloud application, but I've never heard of anyone using it.  The easiest solution for MSFT is to deliver the software as a web app that is cross platform compatible.  The problem with this approach is that Google Docs is free and that's a tough price to beat.  It puts MSFT in a really awkward position.  Office is a multi-billion dollar business.  How do they incorporate a cloud solution without blowing their brains out?  In other words, how do you compete with free?  I have no idea... 

 

Update: I bit the bullet and bought some GOOG.  I couldn't help myself.  The CAD is so strong right now and GOOG looks so good for the long term.  I'll write up my thesis in another thread, but I think over the next 5 years GOOG is going to make a ton of money.  I just thought everyone should know that I'm now officially biased in my tech commentary.  In other words, RIM and MSFT can suck it. :P

 

[Guest Bronco]

VAL - you had no choice.  Don't feel bad.

 

Google is way too cheap.  #1 in internet search and #1 in software for US smartphones.  And both markets growing huge.

 

Tons of talent in the company (yeah yeah - I know we used to say the same for Softy).

 

Youtube - could be a growth application. 

 

Tons of FCF, and kick ass balance sheet.

 

It may be tough, but buy more on the way down and hold for 5 years.  I am.

 

 

[Guest VAL9000]

Bronco,

 

I see Youtube competing with Netflix head-to-head.  I think this is kind of a bad business to be in, but it'll be somewhat profitable.  Or at least more profitable than Youtube is today.  Netflix has a head-start on a few things, Youtube has other advantages..  in the end it'll be two (or more) similar services being offered.  The real benefits will go to consumers and suppliers of IP.

 

Facebook looks like the biggest threat to the (display) ads business today.  We're not talking about 100% cannibalization, though.  Together they will split a bigger pie as more advertisers warm to online advertising and redirect legacy media spend to internet spend.

 

We should see some really nice product innovation along the lines of social.  All the main pieces are already there under the Google product umbrella, it just hasn't been tied together into a single sexy property (like Facebook).

 

And the talent thing is no question.  They pay big for it but it's worth it.  C'mon, they built a self-driving car!  How amazing is that?!

 

[Guest Bronco]

Interesting about Facebook.  I wrote a s-t-y little book and posted an ad on Facebook to help sell it.  You pay a nice little penny, but I am not sure you get the ad to a targeted market.  I think Google has an advantage in this sense (and cents).

 

But you're right - Google and Facebook will increase the size of the advertising pie. 

 

Even though Youtube may compete with a netflix (may or may not), and it may be competitve - I would imagine it is a business that would generate a good return on investment.  The platform is there, and my computer, laptop, dvd player, ipad, iphone all have Youtube (and netflix for that matter).  So the platform is there - just not the content yet.

 

Will be interesting. 

 

 

[Guest VAL9000]

My issue with video is that there is little differentiation outside of content.  I think the porn industry has proven that anybody can stream content over the web.  If they go the route of having exclusive content agreements with the IP owners then they will fragment the market and we'll end up paying YouTube and/or NetFlix to get the right programming mix.  So we'll see..  the model is undefined but it can't be any worse than billions of freely playable videos with no associated revenue stream.

 

I think where Google has an advantage over Facebook is that they can put together much larger advertising programs for their customers.  With search, display, video pre-roll and video overlay all in the mix.  Facebook really can only rely on its own platform, although with their facebook connect tool that platform is expanding across the web pretty quickly...

 

Highly targeted, demographic-based advertising on Facebook will be a goldmine.  It's the way forward for them.

[ERICOPOLY]

Quarterly earnings announced today.  EPS only up 24.4% (or if you include the .05 tax benefit, it's up 36%).

 

For a AAA company loaded with cash and trading at 11.4x trailing, this is a very disheartening performance.  Shareholders should just slit their wrists.

 

 

[Guest HarryLong]

Our systems have me short MSFT. It will be interesting to see how this plays out. I think I have only a 60% chance of making money off this short.

[ERICOPOLY]

For a short term trade I think you are correct that it will decline.  But I think investors will not lose money if bought and held.

 

 

[ERICOPOLY]

Bronco was chattering on about GOOG again today so I looked up the expectation on them and was sort of astonished that it's down to about 12x forward estimates.  So I moved a large bit of my MSFT 2013 at-the-money calls into GOOG 2013 calls.    I just figure the way people behave over growth and multiples, 12x is way too cheap.  This is just speculative money of course -- but that's a given since we're talking calls here.  I just see the odds at this point of a 40% run in MSFT much less likely than a 40% run in GOOG. 

 

[Guest Bronco]

Eric, historically, buying stocks that I buy is a sure path to poverty.  Hopefully, this time is different.

 

Microsoft is cheap by any standard but is like watching paint dry.  I wouldn't short it Harry - if the azzhole named ballmer steps down, the stock pops 2 points.

[RichardGibbons]

Our systems have me short MSFT.

 

Interesting.  What method of risk control are you using, Harry?  Stop buy?

[ERICOPOLY]

Eric, historically, buying stocks that I buy is a sure path to poverty.  Hopefully, this time is different.

 

Microsoft is cheap by any standard but is like watching paint dry.  I wouldn't short it Harry - if the azzhole named ballmer steps down, the stock pops 2 points.

 

I entered the workforce straight into Microsoft back in 1997 (with employee options at 50x earnings) and today I'm just astonished by the prices for large caps

 

GOOG at 12x forward

AAPL at 12x forward

MSFT at 9x forward

CSCO at 9.x forward

INTC at 9.x forward

DELL at 9x forward

HPQ at 7x forward

 

Then

 

KO at 15x forward

JNJ at 12x forward

WMT at 11x forward

 

The list just goes on an on.  Especially getting into the big financials.

 

Then you have people fearing the market is going to crash.  It feels like it already did if you look at those numbers!

 

 

 

[hyten1]

eric i agree i have been looking at these large caps

 

i'll add

 

F and GM

[Guest Bronco]

All the tech you mentioned are cheap.  Yeah, HPQ sucks b/c they are in a tough environment for computers.  Do they have other businesses?

 

Same with Dell (I own some now).

 

Is CSCO really going to be on the outs b/c of Juniper.  If FCF got halved to $5B a year, what is the stock worth?  $17?

 

MSFT - stop the buybacks, pay a dividend, get with the apps, fire Ballmer, hire me. Stock may be stuck at $25 for a while, I have puts sold at $20.  This may be a five down, five up stock.  dunno

 

Apple - god they are good.  But to be a $600B company (esssentially a double) - can they produce $50B in FCF a year to get a 10 FCF multiple?  If not, I would rather be in a business that can.  Still, it is cheap and going higher.  If my math is fuzzy, I am backing out the cash hu-ward.

 

Intel - Sell in May, go away.  This sounds like crap, but I'll buy INTC around $18 again if it sees such a level.

 

Google - I have bought some and will buy more.  I can't be as myopic as wall street.  How many businesses are as good as theirs?  Not many, unless you are selling Iphones or crack rock or perhaps coffee (similar to crack).  Full disclosure - I have never done any illegal drugs and really haven't touched prescription drugs except for a recent ear infection.  

 

Every company I go to uses Citrix.  More and more apps (or do they still call them programs?) use Citrix.  This will get bought out one day.  Don't own and still looks a little expensive to me relative to the slow, slow movers listed above.

 

Just thoughts off the top of my head.

 

 

[Guest Bronco]

KO seems expensive to me relative to FCF.  I would rather buy TAP in the low 40's, and did so. 

 

WMT is just crap to me - I know some like every time I look at the cash flow statement all the cash goes to new, crappy stores that I will never visist. 

 

JNJ - S2S made a comment that this is a difficult stock to understand. Full disclosure I was with a pharma company for 4 years (pharmacia, then Pfizer).  Long story short, I find that they have a giant competitive advantage, similar to WEB, with their corporate structure.  Many will doubt that something could be true but the advantage to me is HUGE.  Why no one copies JNJ or BRK I'll never understand.

 

DPS is a another stock that interests me and one I regret selling at $30.  Won't buy now but it is interesting to me.  Is is feasible/possible to expand internationally?  Can they buy the European licenses back?  CEO says no for now...I'll keep my eye on it.

 

In consumer products, I always have my eye on ENR.  Real quiet, but they get bigger and bigger.  Everyone always uses the analogy "razor blade type business".  They have it.

[ericd1]

Add IBM to the list - cash cow - 11-12x  one of my larger tech holdings

[Guest Bronco]

I refuse to put IBM on my list b/c I was too stupid to buy it at $100 when they sold you they were going to generate tons of earnings over the next 5 years.

 

Ericd1- Thanks for the painful memories. 

[ericd1]

Bronco - I'm sorry...But they've said it again - $20.00 per share earnings by 2015...I believe 'em... :)

[prunes]

The majority of Apple's earnings come from phones and music sales. Windows and the office suite have an enormous moat. In this regard MSFT seems to have much safer earnings to me.

 

HPQ's stock is priced so cheap, but it is in a bad industry and has no competitive advantage. I don't know how you handicap it.

[Guest Bronco]

eric - salt in the wounds my friend.  You show no remorse.

 

HPQ - yeah - bad business with computers.  But what other businesses are they in?  If I look at the FCF the last 4 quarters it is almost $2B a quarter.  They're selling something to somebody. 

 

 

[prunes]

Per Value Line:

 

Rev. as a % of total (and of op. earnings) in Q1’11: Imaging & Printing, 21% (27%); Personal Systems, 32% (16%); Enterprise Storage & Servers, 17% (20%); Services, 27% (33%); Financing, 1% (2%); Software, 2% (3%).