I bought some MSFT a day after the Yahoo deal was proposed because I see a lot of value in this stock. This should be a long term play for me, like most of my trades, and I feel pretty comfortable holding on to MSFT throughout however long the YHOO deal takes. I also add that this is my first entry into this stock and I may add more in the future.
I'll talk valuation first. Right now MSFT P/E is a paltry 16 with a forward P/E of 13. I believe this is very cheap for a company who's earnings grew 18% last year and are on track to grow at 30% this year if they just meet analyst expectations. So far they have beaten analyst estimates for the first two quarters of their fiscal year which now makes it six consecutive quarters of beating the estimates. At the current price their valuation is at the same level or cheaper than many consumer staple stocks with much slower growth rates like Altria, Proctor & Gamble, or Coke. This seems completely wrong to me. Basically I believe MSFT is too cheap compared to their growth.
So MSFT is trading like a business that isn't growing, but one thing everyone should also understand is what business MSFT is actually in and what you are actually buying if you buy MSFT. An investment in MSFT is essentially a bet on the worldwide growth in computers and the software that runs it, Windows and Office. I'm sure almost everyone is aware that Microsoft software runs about 90% of all the computers out there and I don't really see this changing much in the next couple of years. I believe Microsoft will continue it's domination and also grow in foreign markets despite piracy concerns and I expect profit outside of the US to grow quickly as the rest of the world modernizes. Everyone should understand that Windows and Office is what makes up the lion's share of MSFT profit and this is really what will ultimately move their stock, everything else is just icing on the cake.
We obviously focus on the Xbox 360 and their games here on the SimExchange and it is a positive that their entertainment division may finally make a profit this year. However I can only consider it a bonus unless the 360 somehow starts to dominate the console wars and becomes a much larger share of MSFT.
I'll also add that I believe a YHOO acquisition would be positive long term and their bid will ultimately be successful as I speculated in another thread. This would greatly increase their presence on the internet and the fast growing online advertising market, a business that is still in it's infancy. A merger should provide avenues for growth for a long time to come and a combined MSFT/YHOO would give them much more leverage with advertisers.
Finally, I have to caution anybody still reading that a lot of this is just my opinion and I could be wrong on any number of points. I may have made a bunch of money here on the SimExchange, but I am just an amateur investor in the real money markets struggling to figure out how to deal with this very difficult market. I obviously hope that I am right but I've been wrong a lot lately, so caveat emptor.
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I bought some MSFT a day after the Yahoo deal was proposed because I see a lot of value in this stock. This should be a long term play for me, like most of my trades, and I feel pretty comfortable holding on to MSFT throughout however long the YHOO deal takes. I also add that this is my first entry into this stock and I may add more in the future.
I'll talk valuation first. Right now MSFT P/E is a paltry 16 with a forward P/E of 13. I believe this is very cheap for a company who's earnings grew 18% last year and are on track to grow at 30% this year if they just meet analyst expectations. So far they have beaten analyst estimates for the first two quarters of their fiscal year which now makes it six consecutive quarters of beating the estimates. At the current price their valuation is at the same level or cheaper than many consumer staple stocks with much slower growth rates like Altria, Proctor & Gamble, or Coke. This seems completely wrong to me. Basically I believe MSFT is too cheap compared to their growth.
So MSFT is trading like a business that isn't growing, but one thing everyone should also understand is what business MSFT is actually in and what you are actually buying if you buy MSFT. An investment in MSFT is essentially a bet on the worldwide growth in computers and the software that runs it, Windows and Office. I'm sure almost everyone is aware that Microsoft software runs about 90% of all the computers out there and I don't really see this changing much in the next couple of years. I believe Microsoft will continue it's domination and also grow in foreign markets despite piracy concerns and I expect profit outside of the US to grow quickly as the rest of the world modernizes. Everyone should understand that Windows and Office is what makes up the lion's share of MSFT profit and this is really what will ultimately move their stock, everything else is just icing on the cake.
We obviously focus on the Xbox 360 and their games here on the SimExchange and it is a positive that their entertainment division may finally make a profit this year. However I can only consider it a bonus unless the 360 somehow starts to dominate the console wars and becomes a much larger share of MSFT.
I'll also add that I believe a YHOO acquisition would be positive long term and their bid will ultimately be successful as I speculated in another thread. This would greatly increase their presence on the internet and the fast growing online advertising market, a business that is still in it's infancy. A merger should provide avenues for growth for a long time to come and a combined MSFT/YHOO would give them much more leverage with advertisers.
Finally, I have to caution anybody still reading that a lot of this is just my opinion and I could be wrong on any number of points. I may have made a bunch of money here on the SimExchange, but I am just an amateur investor in the real money markets struggling to figure out how to deal with this very difficult market. I obviously hope that I am right but I've been wrong a lot lately, so caveat emptor.