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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerMSFT has gone nowhere for a long time and now it's down. Is there any reason to own it? I can't think of a good one. If you like the dividend and the stability of a big company, well, the S&P 500 Index pays an average yield 20% higher (1.8 vs current 1.5) with more stability and has appreciated faster than MSFT in recent years. MSFT has a P/E higher than the market average. Is this reasonable based on its recent performance? Only if the market has expectations of higher than average potential growth. I think not.
Perhaps MSFT will achieve a breakthrough against one of its many competitors. Imagine Xbox overtakes Sony PS2? What if MSFT were to squash Sony PS2 and totally wipe it out? Suppose they could actually do this in the next five years? Well MSFT has a current capitalization of approximately $242 billion and Sony's is about $50 billion (including a lot more than XBox). Seems to me that MSFT would only be increasing its value by a little over 20% in a five year period if it won the "war." That is less than exciting; That is sad. MSFT what are you thinking about? Buy Sony today with some of your cash. Sell off the parts you can't use and discontinue one of the boxes -- your choice. Might they, if not for government scrutiny?
This scenario plays out the same with other competing products and markets. You could envision Microsoft gaining on five competitors over the next five years, but you still get minimal return on your investment. MSFT is too big to grow much. It should either split up or raise its dividend above the market average. If it doesn't raise the dividend it may find its share price drifting downward 20% until there is a value proposition.
MSFT is a remarkable company with remarkable leadership and a great history. That might give you a warm fuzzy feeling -- something to study, something to envy, something to think about. But something to own? Oh please...what are you thinking?
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Reader Comments (Page 1 of 1)
5-08-2006 @ 10:42AM
Dave said...
MSFT has one of the best performance track records in the history of the markets. When your a giant and stumble once or twice EVERYONE jumps on you.
Give MSFT less than one year. Their stock will go back to + $30.00 Don't forget cash rules!!!
5-08-2006 @ 11:34AM
Cecilia R. Street said...
I'm $3134.00 in the red with MSFT. The stock is dead
nothing is happening. It is boring. cstreet0618@aol.com.
5-08-2006 @ 12:40PM
Sina said...
Hold on to Microsoft, they are really working high. Windows Vista later in the year will allow Microsoft to push all the new technologies it has been developing and get them on everyone's computers. That includes the new Office and Windows Live services, as well as a whole slew of other products.
MSFT is playing catchup with Google at the moment, but we all know from the XBox experience that they can come into a new market and really get a large market share. I wouldn't be surprised if under the new leadership and the current emphasis on developing a greater web presence/advertising income they manage to pull up to a 40% search share.
Moreover, there's still plenty of room for growth in both the search marketing and console areas. There are a lot of very intelligent people at Microsoft; don't underestimate them.
5-08-2006 @ 1:16PM
Claude Foutch said...
The extension of this company into other markets is unlimited; however, the upside due to even limited strategic extensions needs balancing against downsides and use of their shareholder nest egg. They have done exceptionally well at developing a few areas (Win operating system,Office desktop tools and Server software) but seem to always be behind the curve in other prospective areas. Methinks the management needs to either vault them into the lead in the Xbox and MSN sandboxes or get out of the game. It appears they are making that effort now. Having been infinitely frustrated with regaining parity with my investments I have decided to give them until year end 2007 to belly up to the bar. At that time I will strongly urge the BOD to fire some top management and rationalize the company. This has been a travesty of kids playing with a lot of money and whom need to go back to business school! Ten year treasuries are doing well.