The Microsoft Case VI

MSFT had a bullish day today, going up 180 percent points in a quiet day where S&P closed flat and Nasdaq 30 points up. The close was near the high of the day which signals the stock is gaining strength.

The bullish case for MSFT has already been made here. The stock is a gift under 29 considering its intrinsic value of 35 or higher. If you don’t trust me, take a look at the ratio of Price to Free cash flow which is less than 8!!!. I like that ratio very much and in many cases prefer ir to PE since the last one can be misleading with earnings manipulation. At the end of the day what you want from your stock is to get free cash out of its earnings. Anyway, normalized earnings for MSFT are around 2, what gives us a PE of 13 and not today’s 14.5, which is affected by a one time charge of a past acquisition write-off (part of which can get back as cash now that Facebook is reportedly interested in it).

On the technical side i found a possible pattern for MSFT when it comes to reverse trends and filling gaps. Its a guess but could happen:

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Thanks for readying,

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The Microsoft Case V

Technology stocks had a bad day today with GOOG and MSFT going down 1% and AAPL 2.5%. Don’t know exactly what happened specially when macro data on Jobs was positive. Apparently the market is over the before-QE3 stage when all that mattered was Jobs and consumers data. Seems like the only things that matters in December is Fiscal cliff resolution.

MSFT went down to reach 26.38 but managed to close at 26.45. The interesting thing is that volume was lame. The same way I say i don’t get todays action I say volume was meaningless. This last sentence could itself have the answer for today’s price action: no fundamental reason at all.

On the fundamental side it appears the NPD’s report contradicting W8 40 Million sales by saying windows computers sales were down 21% in Oct-Nov YoY, is a bit biased since it goes from Oct 20 when W8 was not on sale yet….those ten days omitted from the sample represent about 20% of the total so…bearish sentiment based on that report is far overdone.

There is also some predictions that Windows Phone will grow 150% next year, going from 2% of the market share to 6%.

On the non tablets sales I have to say that they have come out late. Apparently 3 devices went out in late November, with the majority of them coming out in December and January. That’s why saying MSFT won’t sale tablets is lie.

Finally there is a strong rumor 3 additional models of Surfaces will be out in 2013, raging from 14″ to 8″.

On the Technical side, i found something interesting. Seemed weird to me MSFT has bearly moved in 3 weeks. If we take last 4 weeks, MSFT gapped down in the first, then went up hard and then back down hard. The net result is no movement.

I checked the weekly charts and last time this long consolidation formed see what happened:

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Have a nice weekend folks. Thanks for passing by.

UPDATE: I tried a couple of W8 tablets today, i really liked them. I have watched a video on youtube on the basic commands and they worked great. What called my attention was that they were priced like the Surface but didn’t come with Office. So, I guess Surface price is not that bad at all, and hopefully it will start to sell more now that retailers will have it on stores. See here

The Microsoft Case IV

Today we saw in MSFT some nice consolidation and confirmation of the turnaround after falling relentlessly during 4 days.

I feel good the more the stock resists the unending stream of negative news coming from the Apple fan boys of Business Insider or Yahoo Finance, who are apparently hurt because their partnership with MSFT didnt work or because MSFT tried to buy them out or because they bought at a 40 PE. I dont know but they are pissed.

I feel good because I believe in the company, I believe in its leader and source of inspiration (not Ballmer), and that belief is now turned out to be justified by facts. MSFT has invested heavily in innovation and its ROI above 20% (if we don’t take into account the non cash charge of the write-off in July Quarter), shows their investments usually pay off really good.

To see where MSFT is apparently investing now, besides the Cloud (another future source of revenue) and W8 and Phones. See here.

I also feel good because people with no knowledge on investing at all like Macke and Jackson (haters from Yahoo Finance), are now silent and since people I do respect, among other things because they predicted AAPL’s turnaround, are now writing. See here.

Finally on the technical side, I feel good because a rally is apparently soon to come as shown by this positive divergence forming:

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In the chart above you can see clearly how the negative divergence anticipated the end of the rally for MSFT, and now I expect that the positive divergence anticipate the next rally.

Finally, there is another positive chart showing MSFT trading at the bottom of its range:

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The chart above shows 30.5 as the roof of the channel. That’s my target for January.

The Microsoft Case III

Hello guys, I guess part of you have enjoyed MSFTs great performance yesterday. As you would expect, that kind of price action didn’t surprise me at all since I know the stock is worth easily around 35 bucks and it requires the string of negative news to keep coming to go down even further. As long as that stops MSFT will find a bottom fast as I think it did already.

One important piece of data I found is that after the close someone bought around 10 Million shares, that’s not normal at all and it adds to the positive fact that yesterday the stock went up on big volume forming a nice engulfing pattern that finally could not hold until the close due to the sell-off of the whole Market.

I know MSFT is going higher this month I just can’t predict the daily action, that’s almost impossible. What I also know is that I got out of AAPL on time. I was long since 600 in that stock, I suffered and added to my position to enjoy the big bounce. I sold at 585 after noticing the stock was getting weak and shorts were piling up. I did recommend on stocktwits.com to swap it for MSFT. AAPL is now more that 8% down and MSFT is down 2%.

There’s a big possibility MSFT goes up hard in the coming days, i saw the stock do the same thing a short time ago:

MSFT dec

Overall, MSFT is more likely to get suprises to the upside than to the downside these days. I couldn’t say the same about AAPL a week ago, that’s why I sold it.

The Microsoft case II

In my last post I went thru the main reasons while I think MSFT is a buy.

The stock fell sharply in November due to Obama’s relection (about 4% in 2 days) and after that because of Sinofski’s departure (another 4%).

To me MSFT was a buy at 29 so nothing has changed since then, except for the string of bearish articles (Surface’s reviews, Surface’s sales, MSFT empty stores, PC sluggish demand, W8 flop) span all around the web that led to another 10% decline.

In this article I will assume that you have your reasons to think about buying the stock at today’s price of 26.5 and you are now scared or putting a very tight leash to this buy because everyone says its in bearish territory,

Well, the way i see it MSFT should at least recover about 5% for the chunk of the huge fall taken after the elections, almost entirely offset in the whole market but not in MSFT.

With that happening MSFT should trade around 28.9 sometime in December, which is above the big gap down following Sinofsky’s departure, the level before elections. This target matches the one I get based on the Double bottom pattern just confirmed today as the stock touched the low of the downtrend (26.34) and didn’t go any lower. See here for more details.

To the downside we still have to wait. I think it will mimic the S&P meaning we need Fiscal Cliff solved soon. Anyway the more it goes down based on rumors the quicker it will go up, kind of like what happened with AAPL’s sell off and then jumping 7% in one day.

To the upside we have a big number of W8 devices (tablets and PCs) coming out in December and Surface Pro in January. There is also a rumor Nokia is close to start selling its Lumia Windows phone flagship in China.

Another interesting point is that estimates for this Quarter are the same as last year, around 0.77. MSFT beat estimate last January, and I don’t see why this can’t happen again specially with a lot of products out there which didn’t exist in 2011. I also think W8 sales should be higher than W7 sales in 2011 Jan Quarter, because the later was a product at the end of the cycle and the former is at the beginning.

Finally, I’d like to mention that I added to my position when the stock traded around 27.25 since indicators showed strong bullish sentiment. After that a couple of negative reports hit the stock but for now its holding its major support at 26.34. My system is not very sensitive and only signals strong movements so I still believe that this late performance is not justified.

The Microsoft Case

I feel the need to start writing about MSFT after reading so many bad intentioned articles on the web like http://yhoo.it/Vh0psu (as expected written on Business Insider one more time).

Regarding my experience with MSFT I have been following this stock for a year and a half almost every day. I have profited from it using stocks and options. I lost money with it one time, but that was half my fault and half due to the wave of pessimistic stories that started to be written in October about the “Death of the PC”.

Much of the gloommy atmosphere is related with modest Surfaces sales. Im certainly not worried about that. With current Margins and Surface price, its pretty obvious the device was priced not to lose money and tu advertise W8. So even if there’s been low demand for the Surface, the “high” price and quick cut in orders to suppliers is keeping the company from futures write-offs (losses).

I also think Surface Pro will sell really well. Who wouldn’t spend $1000 for a laptop and a PC bundled together instead of a price of $1700 for an Ipad and a low- end Mac air (comparable products in functionality).

Besides MSFT’s valuations at this point (dirty cheap), i keep believing in the company because of Bill Gates as its Chairman. I have the feeling he wont let things get screwed.

MSFT was forced to take a huge risk with W8 in order to grab some share of the Tablet and Mobile market offsetting some of the licking in OS sells to PCs.

I’d rather see a hungry and competitive Company than a fearful Company just trying not to lose market share in their only segment as DELL or IBM.

MSFT is a brilliantly diversified business, with revenues coming from Office, Windows, Enterprise, Xboxs and hopefully in the near future from Phones, Skype, Hardware devices.

My DCF valuation tells me MSFT is being valued today as if it were going to shrink earnings by 7% yearly in the future. My conservative Fair Value for the stock is 36, which is in line with what analysts think.