Dead money? Isn't a new computer upgrade cycle on the horizon with Microsoft's impending release of its next-generation operating system for PCs, Windows Vista? Not to mention Office 2007 and Windows Server (codenamed Longhorn)? Yes. Did I forget about Microsoft's very promising Web 2.0 and .NET platform initiatives? Or about its recent decision to buy back 155 million shares from investors via a Dutch self-tender offer for $24.75 each?
As you may recall, Microsoft dropped a bombshell on the investment community when it revealed its plans to spend an additional -- and unexpected -- $2 billion on vague advertising-related Internet initiatives in its fiscal 2007. The revelation meant the Street's margin and earnings estimates for next year were too high.
This was on top of the company's earlier revelation that its Windows Vista operating system launch would be delayed from November 2006 to January 2007, thus missing the crucial Christmas selling season. The bad news was too much for investors.
The stock tanked 11.3% in a single day, the largest one-day percentage drop in at least five years. The stock has meandered since then and hasn't been helped by the recent prediction of the Gartner research firm that the Vista release will be delayed even past January into the second quarter of 2007.
Buying the stock now is, in my humble opinion, not an option (pun intended). Why should I shell out, say, $13,500 to buy 500 shares of Microsoft right now if I don't think the stock is going anywhere for at least four months? The $13,500 you invest now could very likely be worth no more than -- you guessed it -- $13,500 in four months.
There's another way -- a better way -- to participate in Microsoft right now, even if you think the stock is going nowhere in the short term. That way, as I alluded to in my intro, is through the use of stock options. And despite the rumors, options aren't as complicated as you may think.
Before you start making zillions (kidding) in options, you'll need to know the basics.
Investors punish Microsoft
No. Despite these things, I still feel that Microsoft is dead money over the next four or so months because of residual investor ill-will surrounding the company's disastrous first-quarter earnings report back in late April.As you may recall, Microsoft dropped a bombshell on the investment community when it revealed its plans to spend an additional -- and unexpected -- $2 billion on vague advertising-related Internet initiatives in its fiscal 2007. The revelation meant the Street's margin and earnings estimates for next year were too high.
This was on top of the company's earlier revelation that its Windows Vista operating system launch would be delayed from November 2006 to January 2007, thus missing the crucial Christmas selling season. The bad news was too much for investors.
The stock tanked 11.3% in a single day, the largest one-day percentage drop in at least five years. The stock has meandered since then and hasn't been helped by the recent prediction of the Gartner research firm that the Vista release will be delayed even past January into the second quarter of 2007.
Microsoft is still dead money
Simply put, this stock ain't going anywhere. The company's $14 billion to $15 billion in sustainable annual free cash flow, its 20% annual earnings growth, and its 20 P/E ratio arguably provides a solid price floor below the stock at right around its current price of $27, but the product delays and uncertainty over the cost-effectiveness of the company's massive new spending plans means it probably won't go up much, either.Buying the stock now is, in my humble opinion, not an option (pun intended). Why should I shell out, say, $13,500 to buy 500 shares of Microsoft right now if I don't think the stock is going anywhere for at least four months? The $13,500 you invest now could very likely be worth no more than -- you guessed it -- $13,500 in four months.
There's another way -- a better way -- to participate in Microsoft right now, even if you think the stock is going nowhere in the short term. That way, as I alluded to in my intro, is through the use of stock options. And despite the rumors, options aren't as complicated as you may think.
Before you start making zillions (kidding) in options, you'll need to know the basics.