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Apple, Microsoft & Transplants

January 22, 2009

Apple CEO Jobs

Apple CEO Jobs

Microsoft CEO Ballmer

Microsoft CEO Ballmer

Rocky took no pleasure learning that Apple CEO Steve Jobs may require a liver transplant. He notes, however, that following an initial swoon on January 14th, Apple stock regained all of its lost ground and more.

As a suffering Microsoft shareholder and believer in the miracles of modern medicine, Rocky suggests that Microsoft CEO Steve Ballmer should perhaps consider a hair transplant. Might this transplant have a similar salutary effect on Microsoft stock? Or do company fundamentals matter more than CEO health?

[Disclosure: Rocky’s coiffure is closer to Ballmer than Jobs. It’s just one more thing that Rocky and Donald Trump do NOT have in common.]

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  1. Me
    January 22, 2009 at 9:52 pm

    Me thinks that Microsoft investors have been hanging too long on the idea that the company’s large cash position is the ultimate metric to gauge this giant. In the meantime, the company has been losing competitive advantage by leaps and bounds.

    Me also thinks that the selling monsoon should start once the $17.50 multi-year support is taken out in earnest.

  2. January 23, 2009 at 12:08 am

    Rocky thanks “ME” for his observation, but challenges “ME” to provide another equity investment with the following characteristics:
    1) Market leader with monopoly position with global presence and global brand name, and for now, no meaningful competitors in their business niches.
    2) Huge barriers to entry and difficulty in product substitution.
    3) Debt free balance sheet (with net cash).
    3) Consistent pre-tax margins > 39% and consistent RoE > 52%. Proven track record of managing growth and business through multiple businesss cycles.
    4) Consistent growth in earnings and revenues without financial engineering (but subject to global business cycle of course).
    5) P/E under 10x

    If such a company exists today, Rocky will, perhaps replace his Microsoft stock with that enterprise. Absent such a revelation, Rocky will only sell his Microsoft stock if MSFT blows its balance sheet with debt and/or its RoE becomes impaired.

    Lastly, Rocky differentiates between investing and speculating, but he engages in both activities. Rocky believes that at the current valuation, MSFT is trading below its intrinsic value (hence a reasonable investment,) but he has no view whether “ME”‘s prediction of imminent stock collapse will be proven true or not.

  3. Me
    January 23, 2009 at 1:12 pm

    ME appreciates the erudite and insightful words of Rocky, but kindly disagrees on almost all points. ME is no rocket scientist, but he is also no stranger to numbers and business in general. ME dedicated most of his career to the advancement of science in the area of continuum mechanics before (crazily) embarking in the area of finance and business administration.

    Rocky’s points 1 and 2 are open to debate and in general fail to encompass the other remaining points of Porter’s five forces model.

    Points 3, 4 & 5 are backward looking and as we all know “past results are no guarantee of future results”.

    MSFT lacks strong leadership and it continues to have difficulties in amalgamating the different business cultures that it acquired through the past several years. The big giant has also demonstrated incredible disarray in its operational structure and organizational goals as best exemplified by the Vista blunder.

    Instead, ME suggests readers to look for stocks in the egg industry and paper tissue. ME believes that eggs will be a hot commodity in the months ahead, and Ballmer will need plenty of tissues to clean the egg mess.

    On a more serious note, ME believes that the oppportunity cost of owning MSFT at this point is too high and that his capital will be better invested in other areas. ME also notes that his short term mechanical trading systems have not produced many buy signals in the past few sessions and that has been a negative omen on a forward basis.

    But ME appreciates Rocky’s points and congratulates him on his new blog.

  4. January 23, 2009 at 1:27 pm

    Rocky suggests that 0% nominal return on cash is something that Mr. Porter and his brethren at Harvard Business School failed to contemplate when developing their theories.

    If the world is actually deflationary (and Rocky doubts this), he further hypothesizes that the value of the cash hoard at Microsoft increases its intrinsic value — rather than being the traditional drag on RoE. This is certainly not what Ballmer intended, but in trading and in love, being lucky is better than being smart.

    Rocky reiterates his completely serious challenge for ME to provide an alternative equity investment which have the (backward OR forward) looking characteristics of:
    1) Market leader with monopoly position with global presence and global brand name, and for now, no meaningful competitors in their business niches.
    2) Huge barriers to entry and difficulty in product substitution.
    3) Debt free balance sheet (with net cash).
    3) Consistent pre-tax margins > 39% and consistent RoE > 52%. Proven track record of managing growth and business through multiple businesss cycles.
    4) Consistent growth in earnings and revenues without financial engineering (but subject to global business cycle of course).
    5) P/E under 10x

    Kimberly-Clark (tissues) do not meet the tests. He is unfamiliar with any public egg companies.

  5. Me
    January 23, 2009 at 2:26 pm

    I think Rocky and ME will have to agree to disagree. ME finds little use for challenges, but appreciates the request. ME is fighting a nasty cold and he usually focuses his energy on his speculating business.

    ME wishes Rocky good luck on his MSFT investment.

  6. January 23, 2009 at 2:58 pm

    Likewise, Rocky wishes ME a speedy recovery and buckets of chicken soup.

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