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MSFT Trading Sideways In Up Market
The market is getting a lift from solid manufacturing numbers out of Europe, signaling strengthening of the global economy. Shares of MSFT however are sideways to down in a rising tech tape. Upcoming catalysts include entrance and uptake in the tablet market (a ways off); Windows Phone 7 adoption (2 million units so far); strides against current market leaders in cloud computing; and continued momentum of Kinect as well as other uses for the technology. The stock currently trades at 9x Enterprise Value / TTM Free Cash Flow, inexpensive compared to historical trading multiples. Check out Business Insider’s updated Microsoft model.
Could Halo Be Coming To Kinect? (VGChartz)
Microsoft purchased an online domain titled “KinectHalo.com” in June of last year. Could this mean that a Halo title is currently in development (by 343 Industries) for Microsoft’s motion-sensing device Kinect? Could that even work? Gamers around the world are peeing themselves with excitement. If you remember last month, Epic Games registered the Gears of War: Exile name and logo and some are suggesting that Exile will be a Kinect spin-off while others say that it’ll be a prequel. It’s also been rumoured that 343 Industries is currently developing a Halo HD remake. So many rumours.
Windows Mobile Outsold Windows Phone 7 In The Fourth Quarter (All Things Digital)
Microsoft’s new Windows Phone 7 operating system got “off to a slow start,” according to market researcher NPD. WP7-based phones accounted for just 2% of U.S. consumer smartphone sales in the fourth quarter. Sales put it not only behind Android, Apple and RIM, but also behind its own, older Windows Mobile operating system. Read more on Microsoft’s mobile strategy debacle from Business Insider’s Matt Rosoff.
Microsoft Scrapping Ad Exchange In favour Of Outsourcing (All Things Digital)
Microsoft is finally going to start selling its ad space via a “real-time bidding” exchange, just as Google does. And by selling I mean the company is going to outsource non-premium display ads to tech start-up AppNexus via its own exchange. Essentially Microsoft will pull the plug on AdECN, the exchange it bought in 2007 but only began testing a year ago. This doesn’t mean Google will be quaking in its boots, but its giant lead isn’t necessarily insurmountable. There’s a very deliberate effort by buyers and sellers to make sure they have other options.
- Covered Calls: With the stock markets close to making new 3-year highs, many investors looking for income and capital preservation should consider the covered call strategy on a portion of their equity holdings. Microsoft $28 Feb 19 calls yield $0.44 for a gain of 1.5% by expiration to covered call sellers. The maximum gain for the next 19 days is achieved if the stock is above $28 on Feb 19 for a 2.4% return. While investors lose out on the upside above $28.44, if Microsoft drops the stock is owned but with a $0.44 lower cost basis than the original purchase price.
- Attractive Value: Microsoft’s dividend has a history of increases with the criticism that the dividend should be much higher since this is more of a value story versus growth (whether they like it or not). Microsoft is still an attractive value play at these levels because: PE close to historic lows Earnings growth expected in the single-digit area (with buybacks) History of increasing dividends Annual FCF in the $15-20 billion range (enough to fund the dividend and stock repurchases while still adding cash on the balance sheet) Pristine balance sheet
- PE close to historic lows
- Earnings growth expected in the single-digit area (with buybacks)
- History of increasing dividends
- Annual FCF in the $15-20 billion range (enough to fund the dividend and stock repurchases while still adding cash on the balance sheet)
- Pristine balance sheet
I’m still not convinced. I think investor money can be put to better use.