Quote:
Originally Posted by Woody
I am very interested in this thread. I mostly lurk on Lateral G and over the last couple of days this is the first thread I have been coming to.
I have been investing in stocks and mutual funds for about 20 years now. I like the idea of working together with other people on investment ideas because many times other people have different viewpoints and it makes you think about things that you might not have considered on your own.
With that being said, I would like to throw out a stock for consideration that I like right now. The stock is Microsoft. I know Greg said Microsoft is dead money right now, but here is why I like it.
I believe it is out of favor and undervalued right now. If you look at a ten year history of revenue growth and earnings growth, it compares very well to any of the high quality stocks that have been mentioned in this thread. For example, the ten year growth rate of net income is 146% for MSFT. As a comparison McDonalds had a 150% increase in net income over the same 10-year period. During the same ten year period, the stock price of MCD has gone up 260%, while MSFT has declined 23%. The PE (Price Earning ratio) is only 9 for MSFT compared to a 15 PE ratio for the market as a whole. MCDs PE is currently 19.
So my thinking is that now is a good time to buy. I have found that chasing the hot stock/mutual fund generally gets you in at the high. I tend to be a contrarian and look for things that may be out of favor but have the potential to come back in favor.
MSFT currently has a 3.08% dividend rate, while MCD has a 2.87% dividend rate. I am mostly comparing MSFT to MCD, but MCD has had one of the strongest runs over the last ten years.
I would like to hear others thoughts about Microsoft as well as any other stock ideas you may have.
|
My take is that you have better downside protection with MSFT right now, than with MCD and like you said, they have a similar dividend yield around 3%. Next year's growth rates for revenue/EPS for MSFT are (7.6%/10.6%) versus MCD at (5.6%/12.4%). So, just looking at analyst estimates, revenue is expected to grow a little faster at MSFT than MCD, but margins are expected to grow a little better at MCD (which is likely why people are willing to pay more for MCD via the higher PE). With the large delta in the PEs, MSFT looks like a better investment to me than MCD right now.
Another option (pun intended) but more complex trade, is to look at options. If you are comfortable with options (no, not all options are risky), you can buy MSFT stock and write covered calls against your stock. For example, if you bought MSFT today at roughly $26 and wrote a March 2012 covered call for $26 for $1. $1/$26 / 3 (option expires in ~3 months) x 12 (est annual return) = 15%. This will cap your gains if the stock rises, but also gives you $1 of downside protection. If the stock stays flat, you let the option expire in March and write another option. If the stock rises, your stock will get called and you have to live with the $1 gain. I am not advocating this trade, but just giving you others options on trading.
If you are a beginner, start doing a little research (starting with Greg's awesome list of stocks above) and buy some shares. Do not try to get rich quick and if you are new to trading, do not use margin to buy stocks. Again, just my 2 cents.