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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Bearded One who wrote (4515)	12/26/1997 6:12:00 PM
From: Sonki	Read Replies (1) \| Respond to of 74651

B1, MSFT did not drible down to 105 or evn 110 as expected on closing of dec. 24 below 120. Question is why did it not move down? Infact, it moved up in after market. I am long and short msft with a straddle. Amazingly, i have made money for the first time on short side and i have not covered my short yet. I am hoping for msft to go down more so I can go much longer. i m trying hard to understand ur logic and i read it over and over again but does not make sense. according to your formula all stocks should trade at a fixed formula. stock does not trade only based on earning but future earning growth. and incase of msft, it's hard to figure out what that will be. cable, webtv and all new buisnesses they will go into. it's not just NT. if any one is not long msft this is a life time oppurtunity to go long.

To: Bearded One who wrote (4515)	12/26/1997 9:03:00 PM
From: John F. Dowd	Read Replies (1) \| Respond to of 74651

A 6% bond at par has a future stream of cash earnings of 10x60=$600 before tax. Taxes depending on your bracket diminishes the return by (let's say) 30%. Now your bond yields $420 over 10 yrs. There is a market risk also as interest rates could go up and the value of the bond would go down but since this would have an adverse effect on the equity market as well we will call this concern a wash. Earnings Per Share for MSFT projected over next 2 years are 3.24 and 3.96 or a 22% increase in earnings yr/yr. Let us say they maintain this rather modest growth for 10 yrs the earning stream works out as 4.83,5.89,7.19,8.77,10.70,13.05,15.92,19.43=approx $93. Converting this to a $1000 we get approximately 8.33 shares or $8.33x$93=$775 and nobody has taxed it and that is why we like high tech growth firms. Given my temperament and tolerance for risk I opt for the MSFT scenario feeling that the 775/420(1.84:1) ratio is worth it. Notice by the way that the earnings in the 5th yr.(out of 10) is 7.19.Hmmmmm In all fairness we have to diminish the end result by a factor of 20% but if you are like me you will never sell your stock but wait to the pile is so big that you can sell out of the money calls at the end of the rainbow. So if you think MSFT is going to grow at 22% then it is priced just about right according to Bearded One's Law based on the 10 yr. scenario. But why assume the company is going to live only 10yrs. IBM, GM etc have been around for at least the term of a 30 yr. bond and if you take 30 yrs. at 22% per yr/yr growth the annual earnings attributable to the 8.33 original shares reach over $1000 per year. The problem of course is that the company does begin to mature and become cyclical and this flattening of the growth curve is pretty well documented in other treatises that are beyond the scope of this presentation!!!! To sum up: The value is returned to the investor in terms of a bigger and stronger company and isn't realized until he/she (note the political correctness there) sells and that is where the risk lies - in the selling. The bondholder knows what the value of the corpus is going to be in 10/30 yrs. whereas the equity shareowner doesn't really know but is betting on the company to produce a bigger corpus than what they began with. The beauty of a great company like MSFT is that in 30 yrs they are not called in but keep on growing and expanding without the encumbrane of a taxed stream of earnings. A bond has no chance on internal growth!!! Happy New Year After that I think I'll go and buy back those deep in the money calls I sold the other day

To: Bearded One who wrote (4515)	12/26/1997 10:01:00 PM
From: Peter Greenhill	Respond to of 74651

Bearded one: good analysis. I will hold MSFT for the next 10 years because regardless of Federal interference re: web browser, I predict that the developments in software over the next 10 years will keep MSFT profits steadily increasing. People who think MSFT is just going to lay down and die because of present uncertainties are taking a very, very short term view. MSFT is a strong company and will get stronger because of the quality of its management and employees and the consequent quality of its products. Day traders can trade the stock at any price they like- long term this stock is going to continue heading north with a vengence, otherwise why would I be holding it!!? Pete Greenhill (currently at Freeport, Pa)