Counter points:
<1. MSFT just broke down below the 50 day moving average for the third time since mid-August.>
Moving averages and many other technical analyses indicators have done a horrible job at predicting MSFTs share price performance. Do a 5 year historical analysis (compare any TA technique to buy and hold being sure to include all requisite trading costs and expenses) and tell me if you agree.
<The higly bearish article in Barrons this week talks about a) institutions selling into any rally>
This is not a scientific sampling, therefore not very reliable . The reporters could have just as easily selected the examples that most credibly supported their stance.
<b) MSFT is refusing to buy its own stock at these levels and considers them too high.>
MSFT buys their stock as a fundign mechanism for thier compensation plans and not as an investment per se. Thus the criteria of "too high" is not necessarily corrollary to whether MSFT stock will perform as an investment. The hurdle rate of a compensation plan have a totally different set of criteria to fulfill. AS for coming from the CFO, that is his job. He is charged (in the case of MSFT at least) with minimizing the volatility of his companies share price, thereby lowering the overall all-in risk and price of equity/option priced compensation. Historically, the management of MSFT spin this story on a quarterly basis, as reliably as clockwork.
<c) P/E ratio exceeding 43.>
P/E ratios come close to being totally inaccurate when dealing with companies that benefit from "increasing returns," heavy amortiztion and intangible assets. MSFT, as Joan alluded to earlier, is adept at manipulating accrual accounting idiosyncracies and reporting inaccuracies in order to efficiently manage the numbers legally reported to the public. Discounted cash flow, adjusted for the value of active investments (also known as economci value) is the best way to judge the value and price of these type of companies.
<d) analysts expect stock to trade at $150 5 years from now. Not
much left to the upside from recent close.>
Sell side analysts have a horrendous track record of overall performance as compared to thier buy side counterparts. Remember, thier primary function is to support the sales and underwriting force, and not to maximize the return on your (the retail client's) portfolio. That is why you don't pay hard dollars for their reports.
<e) No new "major" products over next 12 - 18 months except NT 5.0.>
This is irrelevant. There is significant lag in revenue from new product releases. NT will be a steadily revenue generator for quite some time, with the amount of revenue trending upward, not downward. You also have to take into consideration the absolute size and reach of MSFT. They are still receiving ntoiceable revenue from "legacy" code in Asis (Win16) and product revenue/per release is staggered througouht the globe ex. Europe, Africa and Asia.
As for product releases, the new enterprise edition of the NT server is practically a "new release" which was HIGHLY requested by corporate customers. Authoring and development tools are to be released in no more than two fiscal quarters, probably sooner (ex. front page 98). Client/server enhancements continue to spurthe acceptance of high end MSFT tools, which have significntly higher margins than Microsofts historically marketed products (compare the $4,000 NT server to $89 dollar Win 3.11 or the $300 NT worstation to the $99 Win 95 or the $7,000 backoffice suite to $99 Word, etc.)(IIS 4.0 on NT server, wolfpack, IE 4.0 etc.)
<f) Big tech. companies ganging up with JAVA to rid the marketplace of Windows on the desktop>
Yeah, but it is not working. The best Java development tools are made by MSFT, and the most ubiquitous (not to mention profitable) platform to write to is Windows. Java is beign fragmented as I type this response.
<4. On the past three attempts to get back above the 50-day moving average, the stock
failed each time to go higher than the previous
attempt. This is a very BEARISH indicator.>
Not to debate your style of investing, but TA again is not very reliable with MSFT. Try the buy and hold vs. the moving average comparison with an OTC package like Windows on Wallstreet Professional or Metastock 6.0. For more info techstocks.com |
