Microsoft Should Buy Research In Motion

 

Shares of Microsoft (MSFT) currently trade for $24. This is nothing new as the stock has traded at this price many times since the 90’s. The company has been able to grow earnings at an 11% clip and is trading right in line with its future earnings growth. Despite these solid results, the stock has been unable to rise at all. The stock is down 12% over the past decade. Recently, an analyst at Goldman Sachs and a reporter at Forbes have recently called for the breakup of Microsoft. While this is not a bad idea; I think that a better solution for Microsoft would be to acquire Research in Motion (RIMM).

Here are two moves that Microsoft can make to become more competitive.

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3 Companies That Need To Give Cash Back To Investors

 

This is a post that I had written last week. I was wondering if Microsoft should consider raising its dividend. Well the company stole my thunder and announced that they would be increasing their dividend 23%. I planned to scrap the post but decided to go ahead with it anyway. Instead of looking at why Microsoft needs to increase its dividend; I want to take a look at a few companies that need to follow Microsoft’s lead and return some cash back to their investors.

Here are 3 cash rich companies that can afford to pay more to shareholders.

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3 Stocks That Have Been Cheap For A Decade

I have the learned the hard way that just because a stock is cheap does not mean it is a good investment. It can be tough sometimes to distinguish between a value play and a value trap. Value plays are stocks that are trading below their true value and will eventually reach this value. Value traps meanwhile are companies that appear to be trading cheaply but are trading at their current level for good reasons.

 Here are 3 stocks that have been cheap for a long long time.

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2010 The Year of The Tablet PC

The race to be king in the tablet PC market is heating up. Hewlett Packard, Dell ,Lenovo, Sony and Samsung have all displayed their tablet PC offerings at the 2010 Consumer Electronics show. Microsoft is expected to release a courier tablet PC within the next few months. All of these companies are competing to be the first to market in the sizzling hot tablet PC market. The game changer however is expected to be Apple’s “iSlate” tablet PC expected to launch in the next few weeks.

The tablet PC market is important because it is seen as the next major growth market in computer hardware. Tablet PC’s are smaller more portable devices than netbooks. Netbooks are still relatively new devices ad are expected to surpass 14 billion in sales next year. The tablet market is expected to take in over 5 billion dollars in revenue in its first year. That’s impressive. Tablet sales could increase profits significantly for many tech firms. Now you can see why tech firms are scrambling to be the first to market with their tablets.

The reason that I think that Apple’s iSlate will fare the best is because of Apple’s recent history with its product offerings. From the ipod to the iphone to the imac, Apple has wowed consumers with its innovation in product development. Apple products always seem to possess unique features that differentiate their products from competitors. Consumers have ponied up the cash for Apple’s niche products even during the recession of the past few years. I don’t expect this year to be any different. Piper Jaffray analyst Gene Munster estimates that Apple could add over 1.2 billion dollars in revenue in year 1. That’s a 3% increase in revenue from tablet PC sales alone.

While the tablet market is large enough for many players to get a piece of the pie, expect Apple to outperform competitors as they have done in the past. I wouldn’t chase Apple’s stock at its current price of $210 per share but I would be a buyer on a pullback to $185.

Microsoft Is Raising Cash

For the first time in the history of the company Microsoft is taking on debt. Microsoft (MSFT) is looking to raise up to 6 billion dollars in capital by offering long term debt securities. Microsoft will offer 5, 10 and 30 year bonds. It is curious that Microsoft is raising debt when the company has over 25 billion in cash and short term investments. The software giant is probably trying to take advantage of improving credit markets and declining interest rates. According to Reuters, Microsoft plans to use the proceeds for acquisitions or stock buybacks. It’s tough to tell whether the stock is cheap or not at $20 per share. Microsoft has a strong balance sheet but the company has little overall growth. As discussed previously, certain business segments of the company are growing but overall Microsoft has been stagnant for years. If the company can use its financial resources to acquire a growing entity; Microsoft can move from being a cash cow to a rising star once again.

Finally A Rally!

The Dow is up over 600 points the last 3 days.

General Electric (GE) has risen from the $5 level to the $9.50. I should have bought a lot more when the stock was in the high 5′s. GE rose today despite a ratings downgrade. GE dropped from AAA to AA+. Why is this important? Ratings downgrade raise the cost of obtaining capital in the credit markets. I am hoping that $5.87 was the bottom for GE.

Even American Express (AXP) and Capital One (COF)have risen over 25% the past two days. Both credit card companies still face rising delinquencies and defaults but the stocks appear to have been oversold.  The companies were pummeled to the single digits.

Blue chip companies like Microsoft (MSFT), Pfizer (PFE) and Disney (DIS) have all bounced double digits from their 52 week lows set last week.

PNC Financial (PNC)might be a good short candidate. PNC is trading at $28.55 which is significantly higher than other regional banks like Suntrust and US Bancorp. I know that PNC plans to pay back TARP funds but can they really do that until they know the extent of their real estate losses?

Market Update

Dow Chemical (DOW) dropped to $6.50 today. I am now convinced that if the Rohm & Haas deal is completed that Dow will not be a viable company. It is finally in Rohm & Haas best interest to negotiate a lower price. If the deal is completed Dow will be running to the government for funding.

Berkshire Hathaway (BRK.B) Class B shares are looking cheap. Berkshire is one of the few AAA rated companies left. Plus you get the opportunity to invest with the world’s greatest investor for $2,300.

I am adding more Nike (NKE) stock to my long term portfolio. Great balance sheet and the stock is trading at just over $39 per share. Nike has no debt problems and does not rely on borrowing to fund operations.

I have not bought any Microsoft (MSFT) stock in years but at roughly $15 a share I am willing to buy again.

Microsoft Should Buy Palm and Forget Yahoo

I read a great article that stated that Microsoft should buy smartphone maker Palm instead of Yahoo.  It’s an interesting read. The author makes a compelling case for why Palm is the better buy. Listed below are some excerpts from the article.

“Buying Yahoo would solve none of Microsoft’s software woes—and could likely make them worse if Ballmer spends resources fixing what’s wrong with Yahoo rather than fixing what’s wrong with Windows Mobile. So here’s another plan: Earlier this month, Palm unveiled its fantastic new phone, the Pre. The device looks to be the most advanced competitor to the iPhone yet—in many ways, its user interface, which is much more responsive than Apple’s and features the ability to run multiple apps side by side, bests the iPhone. What it lacks, though, is distribution. The Pre will be locked to Sprint’s network, and Palm has only a fraction of the marketing muscle of Apple, RIM, and Google.

Microsoft might pay tens of billions of dollars for Yahoo; it could pick up Palm instead for just $1 billion or $2 billion and then spend several hundred million more on transforming the Pre’s user interface into a mobile OS that can run on phones made by multiple vendors. Microsoft would also gain a loyal Palm audience—and a base of developers looking to create apps for the device. And then Microsoft would have money left over to buy other software companies—startups and established firms that power the next generation of devices, or that are pioneers in the selling online software to companies. In other words, it could buy lots of companies that share its core mission—building apps—instead of one that makes its money in a completely alien business.

Microsoft’s own boom-era delusion was that by buying Yahoo, it could succeed in both the Internet ad business and the software business. Now that the boom is over, Microsoft ought to take a page from its rival and pick a single business. In 2009, companies are expected to spend about $45 billion on Internet ads. The market for software is nearly 10 times that size—around $388 billion this year. If you were Microsoft, which would you choose?”

The complete article can be found at Forget Yahoo-Buy Palm.

Where has the growth gone?

Microsoft(MSFT) shares tumbled to $17.30 today after the tech giant reported weaker than expected earnings. Microsoft earned 47 cents per share vs. the 49 cents per share expected by Wall Street. Earned revenue came in at 16.6 billion which missed estimates of 17.1 billion. Microsoft failed to deliver up to analysts expectations. This begs the question, Where has the growth at Microsoft gone?

This week’s earnings announcements demonstrates the issues that Microsoft is facing. Microsoft’s PC software sales numbers were down sharply for the quarter. Microsoft blamed the lackluster sales on PC market weakness.This conflicts with what is happening at Apple. Apple(AAPL) crushed its earnings expectations and experienced 9% growth in iMac sales. While Windows is still the most popular operating system, the failure of Windows Vista has only helped to bolster Apple. Microsoft seems as if its becoming more like IBM with increasing sales from its business divisions and decreasing sales from PC divisions. Apple is rapidly becoming the new Microsoft.

Over the past decade Microsoft has seen its stock decline 54%. I have owned Microsoft stock for years and the stock trades like a savings bond. The stock has had very little capital appreciation and a low dividend yield. For years, I have waited while product after product is trumpeted as the next big earnings driver for Microsoft. From the Zune to Windows ME to Tablet PC’s, Microsoft has struggled to regain its technological edge. Meanwhile Apple has seen its stock increase 800% over the past decade. Apple has developed innovative products including the iphone, ipod and imac.

Microsoft may have to look to build upon its online search division and entertainment division for growth in the future. Microsoft’s search and advertising revenues were up slightly. If Microsoft does a deal with Yahoo, the combined companies would have a stronger presence in the online search market. Also, Microsoft’s entertainment division had positive sales growth the past quarter. Video games have appeared to be recession resistant so far. The next generation XBOX’s hardware and software sales could contribute significantly to the bottom line.

Microsoft is still a cash cow and could reinvent themselves with a major acquisition or a new product launch. Hopefully Windows 7 can be the catalyst to finally ignite earnings growth. Until the company identifies their next great software product,the stock will likely continue to flounder.

Top Stocks for 2009

Here are three interesting articles on the top stock picks for 2009. Use these lists with caution as stock picking websites can be just as wrong as they are right.

Smart Money Top Stocks for 2009 - Stocks that I like on this list are Duke Energy(DUK), Microsoft(MSFT), Johnson & Johnson(JNJ), General Electric(GE). None of these stocks are high growers but are best of breed dividend paying stocks.

Motley Fool Best Stocks for 2009 - Exxon Mobil(XOM) and Costco(COST) are the stocks that I like on this list.

Forbes 17 stocks for 2009 - Not a fan of any of these companies one way or another but the column is worth reading.

I currently own shares of GE, Costco and Microsoft.