Bill Gates is super rich but his once high-flying software company has been in the doldrums since mid-2002 after falling from the $35 level. The problem with Microsoft (MSFT) has been its failing to grow both its money and takings at the superlative rates the company once enjoyed.
Any company the size of Microsoft, with a market-cap of $242 bill, will find growth a problem due to its size. But this is not to say the stock is dead. Some distance from it, Microsoft remains a viable long term software company and is cash rich with $34 billion or $3.28 per share in readies. This gives the stock lots of finance flexibility to develop or buy expansion technologies. Microsoft just announced it would spend $1.1 bill in R&D at its MSN Internet unit in the FY07. And in the opinion of the WSJ, Microsoft is exploring the possibility of taking a position in Net media company Yahoo (YHOO) to take on Web advertising behemoth Google (GOOG).
But with an estimated five-year revenues rate of growth of a pitiful 12%, the company has its work cut out for it. Trading at 16.30x its estimated FY07 EPS of $1.44, the stock is not dear but appears to be priced not as a expansion stock.
Its PEG on the surface of 1.51 is expensive, but if you discount in the cash of $3.28 per share, the estimated PEG falls to around 1,0, a decent valuation. Additionally , if Microsoft can improve on its reckoned 12% rate of growth, the PEG would decline further.
The fact is Microsoft at the present price merits a look. If you'd like to play the stock without to pay the $2,347 for a 100-share block, you might like to take a look at the long term options, sometimes called JUMPS. For example, the in-the-money January 2008 $22.50 Microsoft Call Jumps not set to expire till January 18, 2008 currently costs $380 a contract (100 shares).
This means you risk a grand total of $380 for the chance to participate in the potential upside of 100 shares of Microsoft over the next 20 months. The breakeven price is $26.30. If Microsoft breaks $26.30, you would begin to earn money on your Leaps. Conversely, if Microsoft fails to do anything, your maximum risk is $380 on the original option play.
Warning: The previously mentioned example is for illustrative uses only and not to be construed as a real option strategy. Due to the heavier risk embedded in options, I recommend you talk with an investment pro before deciding to employ any strategy involving options.
Any company the size of Microsoft, with a market-cap of $242 bill, will find growth a problem due to its size. But this is not to say the stock is dead. Some distance from it, Microsoft remains a viable long term software company and is cash rich with $34 billion or $3.28 per share in readies. This gives the stock lots of finance flexibility to develop or buy expansion technologies. Microsoft just announced it would spend $1.1 bill in R&D at its MSN Internet unit in the FY07. And in the opinion of the WSJ, Microsoft is exploring the possibility of taking a position in Net media company Yahoo (YHOO) to take on Web advertising behemoth Google (GOOG).
But with an estimated five-year revenues rate of growth of a pitiful 12%, the company has its work cut out for it. Trading at 16.30x its estimated FY07 EPS of $1.44, the stock is not dear but appears to be priced not as a expansion stock.
Its PEG on the surface of 1.51 is expensive, but if you discount in the cash of $3.28 per share, the estimated PEG falls to around 1,0, a decent valuation. Additionally , if Microsoft can improve on its reckoned 12% rate of growth, the PEG would decline further.
The fact is Microsoft at the present price merits a look. If you'd like to play the stock without to pay the $2,347 for a 100-share block, you might like to take a look at the long term options, sometimes called JUMPS. For example, the in-the-money January 2008 $22.50 Microsoft Call Jumps not set to expire till January 18, 2008 currently costs $380 a contract (100 shares).
This means you risk a grand total of $380 for the chance to participate in the potential upside of 100 shares of Microsoft over the next 20 months. The breakeven price is $26.30. If Microsoft breaks $26.30, you would begin to earn money on your Leaps. Conversely, if Microsoft fails to do anything, your maximum risk is $380 on the original option play.
Warning: The previously mentioned example is for illustrative uses only and not to be construed as a real option strategy. Due to the heavier risk embedded in options, I recommend you talk with an investment pro before deciding to employ any strategy involving options.
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