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Stock View: MSFT - Simple Question: Why Buy It?

July 17, 2008 11:26 PM

thumbsdown.jpgI have been very negative on MSFT for a long time. The reason is very simple. Why buy it? Their money is made on two products, Windows and Office. Both of these products were made over 15 years ago, with slight improvements over the years. They have done zip since and I mean nothing. This is paramount to a company having a “cash cow” that invented the typewriter. The cow will eventually die. 

When examing a stock for an investment (not a trade) you have to ask yourself a simple question? Why buy it? Does the company have something that will increase revenues long term or are they reliant on past success? If they are reliant on a past product, can they increase share with that product? If they cannot increase share and they have nothing else in the “pipeline”, then what is compelling enough to invest in it? Remember my view on this issue. Fundamentals matter, valuation does not. Good fundamentals can make a very high PE cheap in time, poor fundamentals can and will do the opposite, over time. MSFT’s fundamentals strongly suggest that the stock will move with the global economy at best, and gradually decline over time with increasing alternatives to Windows and Office, at worst - unless they create a huge winner and soon.

If AAPL had decided to allow other companies to license their software in the 80’s, MSFT would possibly not even exist today. It certainly would not be a giant.  That is the only misstep (albeit probably the largest mistake in the history of business) that Jobs has ever made. If you recall the 80’s, using a MAC was a gift compared to using a MSFT based pc. Windows’s based pc’s were inferior on all levels and it wasn’t even close. It was literally like driving a Yugo vs a BMW. They won the battle only because of licensing. The Appleheads would say this is still the case. Then again, so would many tech experts.

MSFT has had argunably one success in the last 10 years - the Xbox. Good call. But this is just a stand alone product. It isn’t a vision of integration and isn’t on the scale of what could have and should have been accomplished in the last 15 years. ITunes, IPods and then the following IPhone is a vision of integration. They all mesh together and all increase the desirability of not only the two, but also an increased desire for Mac’s. They are all part of a grand plan as I see things. MSFT seems totally reliant on the economy because their sales of “exisiting” products are based upon global demand of PC’s. They aren’t creating demand. This is not good, especially in this economy.

MSFT’s “vision” is apparently to takeover Yahoo? Another company that also cannot figure out how to properly monetize and advance their once dominate position? I don’t get it. Perhaps they have a grand scheme or revolutionary product that we are not aware of, possible. But if they had a plan, would they be looking to buy Yahoo? I would think not.

If coffee has been banned at MSFT and replaced with bottled water, not only do I strongly suggest getting the pots back in action, they need to double bag the next few pots. They apparently are asleep and have been for quite a long time. This review may seem a bit harsh, but these people are making many millions of dollars to lead with VISION. And they aren’t, obviously.

Written by Tom@StockBlade.com · Filed Under AAPL, Stock Comments 

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