Turning "Dead Money" Into Gold
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| Dead money? Isn't a new computer upgrade cycle on the horizon with
| Microsoft's impending release of its next-generation operating system
| for PCs, Windows Vista? Not to mention Office 2007 and Windows Server
| (codenamed Longhorn)? Yes. Did I forget about Microsoft's very promising
| Web 2.0 and .NET platform initiatives? Or about its recent decision to
| buy back 155 million shares from investors via a Dutch self-tender offer
| for $24.75 each?
|
| Investors punish Microsoft
|
| No. Despite these things, I still feel that Microsoft is dead money over
| the next four or so months because of residual investor ill-will
| surrounding the company's disastrous first-quarter earnings report back in
| late April.
|
| As you may recall, Microsoft dropped a bombshell on the investment
| community when it revealed its plans to spend an additional -- and
| unexpected -- $2 billion on vague advertising-related Internet initiatives
| in its fiscal 2007. The revelation meant the Street's margin and
| earnings estimates for next year were too high.
|
| This was on top of the company's earlier revelation that its Windows
| Vista operating system launch would be delayed from November 2006 to
| January 2007, thus missing the crucial Christmas selling season. The badn
| ews was too much for investors.
|
| The stock tanked 11.3% in a single day, the largest one-day percentage
| drop in at least five years. The stock has meandered since then and
| hasn't been helped by the recent prediction of the Gartner research firmt
| hat the Vista release will be delayed even past January into the second
| quarter of 2007.
|
| Microsoft is still dead money
|
| Simply put, this stock ain't going anywhere. The company's $14 billion to
| $15 billion in sustainable annual free cash flow, its 20% annual earnings
| growth, and its 20 P/E ratio arguably provides a solid price floor below
| the stock at right around its current price of $27, but the product delays
| and uncertainty over the cost-effectiveness of the company's massive
| new spending plans means it probably won't go up much, either.
|
| Buying the stock now is, in my humble opinion, not an option (pun
| intended).
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http://biz.yahoo.com/fool/060914/115826023513.html?.v=3
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