One of the cool things about the new Motley Fool CAPS stock picking feature is the ability to see what bulls and bears think of any given stock at any given time. Last week we kicked off Community Pool by taking a bite out of Apple Computer
This week, let's talk a little Microsoft
For the love of Microsoft
Nobody thinks that Microsoft is perfect, but it is starting to show up on more than a few value-hunting radars. Even the particularly picky Philip Durell gave Microsoft a nod when he recommended it to his Inside Value newsletter readers.
So what does the community think? Let's see what a few Microsoft bulls had to say about the company on the CAPS board.
WbuffetJr -- 9/15/06
MSFT has been stagnating for a long time, in part due to delays of the Vista release. Vista is coming out this January. I am 97% certain on this, and you can pre-order on Amazon
MSFT is sitting on over $3 per share in cash with no debt, putting its true price (its enterprise value) at around 16 times TRAILING free cash flow. It could be a single-digit multiple of forward free cash flow depending on how you think Vista will do. In my opinion, that's pretty cheap for a company that's about to release the latest version of its cash cow. And as for competitive moats, well, moats don't get much deeper than a practical monopoly! A quality business with superstar management, and when your moat is so deep the justice department sues you over it? That's a pretty good business.
MSFT won't annualize 30% for the next decade -- it's too big for that -- but it will outperform the S&P 500. That much I'm pretty confident about. Plus, their new wireless iPod knockoff is an unknown to me, but I treat it as an added bonus that may do well, just like the Xbox came into an established market and did well. If it doesn't, this company is cheap on its own merits.
Tarantula -- 7/20/06
Plenty have mentioned it -- this company's cash hoard (there is no other word) gives it a tremendous advantage. It has some 30 BILLION dollars in cash sitting idle. At that rate it could stop making any money right now, and still go on investing and developing new products for the next DECADE before running into any serious cash problems. Don't underestimate the value of defenses like that.
As for the moat: realize that many corporations in this country and abroad haven't upgraded to WindowsXP yet, so it doesn't really matter when Vista launches. Most corporations wait until all the security bugs are shaken out before upgrading their enterprise. How many Fortune 1000 companies are running open source solutions on their desktop? How many of them are going to let Google
(NASDAQ:GOOG)or some other company host all of their sensitive data for them outside of their firewalls?
Mtremeill11 -- 9/15/06
Like so many others, I believe that VISTA and Office 2007 will send this stock up over the next year or two. Apple is gaining market share in hardware and software, but they're starting from well behind. Also, improved software for Macs allow owners to buy and run VISTA on their Macs. No matter what the competition does, Microsoft isn't going away.
Esxosm -- 8/22/06
Here's the deal: Operating system monopoly. That monopoly should be around for at least another couple decades -- the death of the non-open operating software is greatly exaggerated.
Monopolies yield excess cash for investment. And that excess cash should grow with the Vista upgrade. Excess cash leads to bigger dividends and wonderful effective yields down the line. Plus, there are other investment opportunities such as video games (especially online games). Microsoft has a great thing going with the Xbox franchise, which includes the Xbox Live strategy. Check it out.
Bottom line: Microsoft generates a lot of cash flow. It is buying back stock like crazy. No, this isn't a short-term growth story. It is a secular total-return story. Buy yourself a future stream of retirement income today!
Playing hardball with Mr. Softy
Naturally, we weren't going to let Microsoft get away without reviewing the other side of the argument. Here's what some of the bears have been saying about the company.
Jackcrow -- 9/14/06
The new Windows, the marquee product, is pushed back again and will not have many of the promised improvements. Dividend increases will continue to travel at half the speed of snail.
It won't tank. It may even be $27-$28 four years from now. Is that really what you want to buy?
BBQPorkMogul -- 9/14/06
Jack of all trades, master of nothing but operating systems and MS Office -- both with little more than upgrade growth left. Poor capital allocation. Threatens but never dominates.
Crassfool -- 9/21/06
Microsoft's leadership seems unable to manage the company's main business -- the creation of new software -- in an efficient manner. The company's inability to ship software on time or with all the promised features is deadly. New top management is desperately needed, but the will to change seems lacking.
Foolsjournal -- 9/20/06
This may be an emotional bet, but I don't think MSFT has much room to increase in value. Vista is languishing, and while it will certainly earn them some cash (if it ever comes out), I don't see it as a source of growth. In fact, I don't know where MSFT's growth will come from. The ZUNE will be a bust. The Office suite and support programs are entrenched and their best bet.
MALEVitch -- 9/17/06
There is no doubt Microsoft will survive on the long term, but it will need to reinvent itself. In the medium term it will have to face declining revenues from its cash cows, such as its OS and office suite that will be taken over by open-source equivalent. Many organizations -- universities, government agencies -- already run their IT out of free solutions. Slowly and steadily these solutions will start biting into Microsoft revenues.
Room with a Vista
So where do you stand? Warming up to the Microsoft empire? Believe that the best that the company has to offer is in the past? Microsoft clearly has some challenges at the moment, and those struggles won't get any easier unless Vista is a slam-dunk success.
Then again, the way the stock has meandered about over the past few years, it'd hardly take giant leaps forward for Microsoft to appreciate from this point.
There's definitely a lot to be said for both sides of this story. Feel free to join the fray and share some thoughts of your own.
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Longtime Fool contributor Rick Munarriz learned to swim at an early age, so he doesn't fear diving into the community pool. He does not own shares in any of the companies in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy .