Just a thought, not a recommendation.
In some ways, I find it hard to believe that I’m writing this. I’ve been mentally making fun of the value investors who have witlessly piling into MSFT over the past several years.
What’s wrong with them, I thought. The stock is trading at 4x book value, a statistic they used to beat growth investors over the head with as an obvious indication of preposterous overvaluation. More important, don’t they realize how weak the current management is? …and how deeply entrenched the top is through personal friendship with founder Bill Gates? If a decade+ of squandering corporate resources isn’t enough to force change, what would be?
Perversely, the golden goose of the Office suite has still been laying enough eggs not to impinge on the personal lifestyle of Mr. Gates, so there has been no practical reason for him to question the way his company is being run. And Gates’ public statements show him to be very deeply committed to providing jobs for his friends.
What has changed, you ask?
–Steve Ballmer, Bill’s now-billionaire college friend, is out. …and the search for a successor looks to be going far beyond the ususal (for MSFT) well-dressed, glib self-marketers to include people with actual management credentials. So maybe change is possible, after all.
–2014 may well be an average year in terms of gains, meaning that a stock that goes up by 10% (remember, MSFT has an above average dividend, too) will probably be an outperformer. So the bar is set pretty low. Earnings don’t necessarily need to show any acceleration, either. MSFT has been trading at about 2/3 of the market PE multiple for the past several years. Just the idea that the status quo is no longer acceptable to the MSFT board may be enough to give the stock the boost it needs.
Every so often I look at Microsoft as a possibility since it has a nice dividend and has grown nicely, but then I think it may have grown about as much as it will. I also worry that other operating systems and software may start to push Microsoft products out. I think we’re seeing a shift from PCs to smart phones and tablets. Most people never really needed a PC in the first place, and now that they have smart phones I think we’ll see PCs decline back to their previous levels. Microsoft may decline if they don’t find a way to make it into the smart phone and tablet markets. This is a shame since they finally have n OS that you don’t need to reboot three times a day.