There is an old market saw about how the leaders from one bull market are not the leaders in the next bull market.
That’s true for a number of tech stocks: Dell, EMC, Cisco, Sun — and its especially true about Microsoft:
I have never been a big fan of the Mister Softee. From a tech standpoint, their products are kludgy and unimpressive; Their strong suit is not Innovation — it is relentless, incremental improvement, eventually leading to a decent if underwhelming product. What they end up producing are the lowest common denominator bloatware that can be easily managed by a corporate IT staff.
It is a great cash flow machine. Its the monopoloy, stupid.
From an investment perspective, there are 2 key issues to observe: first, they are a mature company whose fast growth days are well behind them. They are too big to be responsive, too expensive to be a value stock, too slow growing to be a growth stock. In short, they are in the process of morphing from the software PC leadership company to nice, quiet, money machine. I would expect a good entry purchase (i.e., from lower levels) could throw off gains of 10-15% a year, including dividend.
The second thing to observe — and all too many investors overlook this — is that the money is in the monopoly products. Except for Windows and Office, pretty much everything else is 3rd rate money-loser, with SQL as the exception. They have a few products that have slowly began to move up the scale, and their hardware products aren’t bad, but note where the lion’s share of their revenue, and nearly all of their profits come from: the Monopoly.
They continue to lose market share to Google in search (Don’t believe the vaporware hype); Their blogging product is a 4th rate ghetto; MSN continues to lag, losing share and money; X-box is a multi-billion dollar loser (no one else would have/could have thrown so much cash at merely hurting Sony); They keep pushing back Vista — thats a function of how sprawlingly large and apparently disorganized they have become as an institution; Oh, and I am still awaiting their iPod killer, first mentioned by them about 30 months ago.
I remember the days when the mere mention of Microsoft moving into a product area would disrupt the competition, force delays in other company’s purchases, and crush competitor’s stock prices. The vapor announcements have lost their punch; that strategy is no more.
Outside of the monopolies of Windows and Office, there is SQL Server database software — which has been garnering more share — and not a whole lot more. Lest you think I exaggerate, go read their quarterly statement.
While I have no faith that management can aggressively boost future sales outside of their monopoly products, it almost doesn’t matter. If you buy it now, your biggest risk may be death by boredom. This will eventually become cheap enough to buy where it will be reliable if boring old money machine; I just don’t think we are there yet . . .
Update: April 28, 2006 9:33am
I wrote this up yesterday while awaiting Microsoft’s earnings; MSFT opened down 11% to make a new low $23.60; I would be a buyer in the high teens/low 20s (technically, $22- $22.50) — so we are not quite there yet . . .
Also, see David Pogue’s NYT column on the new Internet Explorer, who notes that the product hasn’t been upgraded in over 5 years!
Update 2: May 5, 2006 12:38pm
John Dvorak discusses 8 signs that the software giant is dead in the water in The Microsoft malaise
Update: April 28, 2006 11:38am
Cramer joins the Microsoft skeptics . . .
Microsoft 5 year chart
“Every Change of Rate” is an utterly hysterical parody of the black & white Police video “Every Breath You Take,” as done by some Columbia Biz School students; Its an amusing take on the Ben Bernanke, the newly appointed Fed Chief. My favorite bit are the lyrics during the second verse: “First you move your…Read More
Sales of existing homes surprised to the upside yesterday. But one data point does not make a trend. This is the first rise (sequential monthly change) after 5 straight months of falling Home Sales. And that’s before we examine the data.
Before you declare the end of the housing slow down, consider:
- Existing Home sales actually slipped vs. last year by -0.7%; The reported gain was over last month’s data;
- the Inventory of unsold homes soared 7 percent in March, hittting an all-time record; There are now 3.19 million existing homes for sale, or 5.5 months’ supply; That’s the largest inventory since July 1998
- Existing homes edged up 0.3% last month to a seasonally adjusted annual rate of
6.92 million units; (we know that seasonally adjusted data is not always accurate)
- Year over year, the Northeast and Midwest gained, while the previously hot housing markets in the South and the West slipped;
- median home prices are still rising, albeit nmore slowly — up 7.4% year over year, to $218,000.
Here’s a data point that has me scratching my head: Why are there different numbers for the year-over-year changes for seasonally and not seasonally adjusted? Was this March somehow in a different season than last year’s March? I am perplexed.
Note that data for existing home sales comes from National Association of Realtors, a group that is certainly an interested party; Of course, as a homeowner, investor, and someone with a public bearish tilt for the second half, I’m hardly objective myself (hey, I try). But this oddity — down -0.5% for the not seasonally adjusted year over year versus down -0.7% for the seasonally adjusted year over year — is beyond my comprehension.
So much for the hard data on existing sales; Today, we get New Home Sales. Recall our prior admonishments that monthly New Home Sales Data are unreliable; look instead to a moving average.
Let’s move onto some anecdotal evidence. A friend writes:
"Flop! Wow, KB running blue light specials in California. Not surprising,
Chico area was rated one of the most overvalued markets in the country. Houses
in the $200k space. When was the last time you saw that in California? "
Here’s the sales pitch:
"Oak Knoll Place in Live Oak is located in a beautiful
community near the majestic Sutter Buttes. With easy access to Highway 99, it is
ideally located for easy access to Sacramento, Lake Tahoe, Reno and a wide
variety of recreational opportunities. Yuba City and Marysville are
approximately 10 minutes south, Chico is approximately 35 miles north and the
Gray Lodge Wildlife area is approximately 10 minutes west. Live Oak has a
quaint, small-town atmosphere with many nearby recreational water activities,
including the Feather River, Yuba River and Sacramento River. Prices starting
from the High $200′s."
I don’t know Live Oak, but houses like that in California are hard to imgaine . . .
More after the jump.
Existing-Home Sales Rise Again in March
NATIONAL ASSOCIATION OF REALTORS
WASHINGTON (April 25, 2006)
Existing Home Sales data
NATIONAL ASSOCIATION OF REALTORS