Omakase

Thursday, November 10, 2005

Buy: Microsoft

I'm sure there are better ideas out there, but few less risky.

MSFT, with a market cap of $285B, but with $40B in cash, has been generating greater than $4B in operating cash per quarter, though paying out less than $1B per quarter.

I think this has to change - perhaps in the form of a higher quarterly dividend, a special dividend like last year, or increased stock buybacks, like Intel just announced.

Beyond the cash argument, I think 2006 and 2007 will be huge years for MSFT, as they'll be refreshing all of their important products (Windows, Office), and also a new XBOX (which has to date been a HUGE money loser for MSFT.)

(I buy to hold for 2 years at a minimum. I'll explain that in a future posting.)

MSFT's forward P/E is: 17.8 - roughly the same as a large bank, and the company - after accounting for cash is valued at ~12x operating cash flow - not bad for a business still growing revenues at >11% and earnings @ ~15% annually.

(Another way to look at it is: would you be excited to own a stock that's a monopoly, yet still growing sales and earnings at double digit rates, and valued at an earnings multiple comparable to large, low growth bank? Sounds good to me!)

(Actually, you had me at "monopoly.")

The only thing not to like: MSFT is the Evil Empire. I hate their dysfunctional software and hate even more their predatory, anti-competitive business practices. (For the record, I own and use an Apple iMac.)

But, as much as I hate MSFT, that's how much I'd like to see my portfolio grow. I may hate Microsoft, but I sure hope it helps pay for a nice retirement.

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With my new friends on the Great Wall of China

With my new friends on the Great Wall of China
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World sun clock

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Uncommon Man's Creed

"I do not choose to be a common man. It is my right to be uncommon -- if I can. I seek opportunity -- not security. I do not wish to be a kept citizen, humbled and dulled by having the state look after me. I wish to take the calculated risk; to dream and to build, to fail and to succeed. I refuse to barter incentive for a dole, I prefer the challenges of life to the guaranteed existence; the thrill of fulfillment to the stale calm of utopia. I will not trade freedom for beneficence, nor my dignity for a handout. I will never cower before any master, nor bend to any threat. It is my heritage to stand erect, proud, and unafraid, to think and act for myself, to enjoy the benefit of my creations, and to face the world boldly and say, "this I have done." All this is what it means to be an American." -- Anonymous