Downside Protection Report: Microsoft is a bargain hiding in plain sight (plus: our other top pick of the month)
Here's an excerpt from the editor's commentary contained in the latest issue of Downside Protection Report, the monthly newsletter that is setting a new standard in idea generation for serious investors:
Dear Fellow Idea Seekers,
Be careful what you wish for. Until fairly recently, the ancient Chinese proverb, “May you live in interesting times,” sounded pretty good. Who wouldn’t prefer interesting times to the alternative, right? Well, not quite, if the alternative isn’t dull times but times that are a bit too interesting.
Another wish we’ve heard from investors over the years can be paraphrased as follows: I wish I’ll have a chance to buy my favorite stocks at a bargain price! Until recently, this seemed like an ambitious wish, especially for value-oriented investors who didn’t like the idea of paying twenty times earnings or more for wide-moat companies like Disney (NYSE: DIS), McGraw-Hill (NYSE: MHP), Viacom (NYSE: VIA-B), or Microsoft (Nasdaq: MSFT).
Investors are now getting their wish, perhaps a bit too much so. Many are now frozen in their tracks, waiting for some sort of “uncertainty to lift.” Never mind that when those same investors made their original wish, they acknowledged that whenever their wish was granted, they would almost certainly have to accept some near-term uncertainty in exchange for getting a bargain.
One such bargain hiding in plain sight is Microsoft, which we are buying this month. Microsoft can credibly lay claim to being the world’s best large business. It has a near-monopoly in operating systems, high margins, high returns on capital, a respected global brand, and continued prospects for long-term growth.
Since going public in 1986, Microsoft has never been as cheap on a P/E basis, trading at less than ten times forward earnings. This is even more noteworthy when we consider that the headline P/E doesn’t give the company credit for several growth businesses, including MSN.com and Xbox.
Our valuation analysis of Microsoft and our other top pick of the month is disclosed in the new issue of Downside Protection Report. Read the full issue now by starting your 30-day free trial.
Disclosure: DOWNSIDE PROTECTION REPORT is published monthly by BeyondProxy LLC, P.O. Box 1375, New York, NY 10150. Website: www.manualofideas.com. Email: support@manualofideas.com. Please email or call if you have any subscription questions. Managing Editor: John Mihaljevic. Subscription $149 per year. © Copyright 2008 by BeyondProxy LLC. All rights reserved. Photocopying, reproduction, quotation, or redistribution of any kind is strictly prohibited without written permission from the publisher. This newsletter bases recommendations and forecasts on techniques and sources believed to be reliable in the past and cannot guarantee future accuracy and results. BeyondProxy’s officers, directors, employees and/or principals (collectively “Related Persons”) may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this newsletter. John Mihaljevic, Chairman of BeyondProxy, is also a principal of Mihaljevic Capital Management LLC (“MCM”), which serves as the general partner of a private investment partnership. MCM may purchase or sell securities and financial instruments discussed in this newsletter on behalf of the investment partnership or other accounts it manages. It is the policy of MCM and all Related Persons to allow a full trading day to elapse after the publication of this newsletter before purchases or sales of any securities or financial instruments discussed herein are made. Use of this newsletter and its content is governed by the Terms of Use described in detail at www.manualofideas.com/terms.html.