buying Microsoft (MSFT) !?!

Yes, that’s what I’m beginning to do.  I’ve bought a small amount and intend to add to it on weakness.

For me, this is an unusual step, since MSFT isn’t exactly what you’d call a growth stock.  Quite the opposite.  It’s a value idea.  I’ve been building to it for some time, though.  I few months ago I wrote that in a year like 2014, where I imagined (and still do) that a stock that’s up by 10% will be an outperformer, the bar is set pretty low.  And after thirteen years of decline vs. stocks in general, the news that the company had dysfunctional management and had gone ex growth had been pretty thoroughly worked into the stock price.  My son-in-law told me it’s the nicest thing he’s ever heard me say about MSFT.  (It was a big part of my portfolios all through the 1990s, however.)

I also privately scoffed at prominent value managers who loaded up on MSFT several years ago purely on the notion that the stock was cheap, ignoring the issue that change of control was well-nigh impossible.

What’s changed?   …or, better, what’s changed my mind?

As I mentioned above, the market situation is one thing.

The stock’s metrics haven’t moved much:  steady cash flow of $3+ a share, earnings of $2.75, a dividend yield of just under 3%.

There’s a chance earnings may improve over the next few years:

–the board of directors has put new top management in place.  A cadre of looks-good-in-a-suit-but-doesn’t-do-much lieutenants are disappearing, as well.  There’s no guarantee that the new guys are any better than the old.  On the other hand, it’s hard to imagine they’ll be worse.

–Apple’s failure to produce an adequate alternative to the Office suite has limited the inroads it can make into MSFT’s corporate market.

–Windows 8 (I just got a new touch-screen laptop) is pretty good–very iPad-ish.

–a new generation of Intel chips + the emergence of Samsung, Asus (my brand), Acer and Lenovo making high-quality products may well reenergize the US consumer market.  Much lighter weight, high-resolution screens, instant-on and touchscreens may counter some tablet momentum.

–with its consumer/small business products, MSFT has had a continuing (large) piracy problem.  The shift to the cloud will help police that.

–new management may do good things.  Even if not, the idea that the company is turning a new page will likely support the stock until we can make a better judgment.

One response

  1. I’d add – it is a safe bet. Will it’s share price expand in the near term? Your guess is as good as mine (which is no, straight line out for at least a year). Will it lose value? No way. Therefore, buy in now and see if it does have some legs…

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