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Yesterday, we talked about
bubbles and tech stocks. While it’s possible to argue that certain sub-sectors of the
Nasdaq may have some bubble-like valuations, technology blue chips are
definitely not in bubble territory.
As I noted, the Nasdaq 100 (NDX), which is
comprised of the 100 largest companies on the Nasdaq, is currently
trading with a trailing P/E of 12.5, according to the Wall Street
Journal.
And the reason the P/E is so low on the NDX is
that the five most influential tech stocks — Apple
(Nasdaq:AAPL), Google (Nasdaq:GOOG), Intel (Nasdaq:INTC), Microsoft
(Nasdaq:MSFT)
and Oracle (Nasdaq:ORCL) — all trade with forward P/E ratios of 13 or less.
Microsoft may be the cheapest of the group, with a
forward P/E of 9. Of course, there is such a thing as too cheap. There’s
a reason Mr. Softy is trading at such a low valuation — the company is
widely seen as something of a dinosaur. It’s missing out on tablets and
the wireless device boom.
Its Windows mobile operating system has been in
the works for nearly a decade and has no significant design wins. Cloud
computing threatens to move word processing off the desktop, its search
engine Bing is a flop, and it’s failed to make interesting acquisitions
like Yahoo! (Nasdaq:YHOO). The Skype purchase could be significant, if Microsoft can
figure out what to do with the service.
*****Missing the tablet boom is especially ironic,
because the tablet was a pet project of Bill Gates’ from a decade ago.
Gates toyed with tablets that would convert handwritten text using a
stylus into digital text. The idea never took hold because the tablet is
more for entertainment than work, something Apple’s Steve Jobs
understands.
The problem, according to some, is CEO Steve
Ballmer. Hedge fund heavyweight David Einhorn, of Greenlight Capital, is
vocally calling for the Microsoft Board of Directors to fire Ballmer and
give someone (anyone) else a chance.
Einhorn owns around 9 million shares of Microsoft.
And he clearly wants the share price to rise. And like other “activist”
investors like Carl Icahn, he’s trying to throw his weight around to
prompt change.
I’m not sure it’s possible to refute Einhorn’s
contention that Ballmer should go. After all, the list of Microsoft
missteps is pretty long. His only real success so far as products go has
been the XboX.
No doubt, Einhorn is very aware of what happened
at Apple when visionary founder Steve Jobs came back. Would the return of
Bill Gates make for a similar renaissance for Microsoft?
It’s hard to see how it would hurt…
*****Microsoft has been doing better, financially
speaking. Sales growth has improved and return on equity is up. And it
beat earnings estimates by $0.05 a share for the first quarter.
It could be a good time to pick up some Microsoft
shares.
*****As investors, we should be cheering for
higher oil prices. The correlation between oil and stock prices is pretty
much ironclad. Expectations for expanding growth mean oil prices and
stock prices rise.
It