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Tech Stock Mania: Could Microsoft Be the Winner?

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Apple (AAPL) is getting most of the attention this morning due to its earnings release last night. Two weeks ago, I asked "Is it time to dump Apple," and I think the answer is increasingly "yes." Though the company remains wildly profitable, earnings missed estimates this quarter, and there is a sneaking realization that Apple's competitors are catching up.

But today, it's not Apple I want to talk about. It's Apple's erstwhile PC rival Microsoft (MSFT).
Microsoft was the undisputed winner of the PC era, but the company hasn't quite found its way in the era of Web 2.0 and social media. The smartphone war is down to two main combatants in software--Apple and Google (GOOG)--and two in hardware--Apple again and Samsung. And despite coming out with a tablet years before anyone else, Microsoft has been left behind on this front as well.

Things are about to change. With the long-awaited release of Windows 8, Microsoft is making a real push into the world of touchscreens and tablets.

Apple launched the first offensive in the smartphone and tablet wars, but in a long-term war of attrition it is doomed to lose for the same reasons that it lost the original PC war. Apple has always maintained a closed ecosystem and insists on making its own hardware and software. Steve Jobs' pigheadedness is the reason why the Wintel platform and not the Mac that came to dominate the desktop and laptop markets.

It's all happening again. Apple again jumped out to a huge lead, but it will lose the war in the end.
And what about Google? I like Google and I personally use an Android phone. But I believe in a long-term war of attrition it is Microsoft that will win. I question whether Google really takes Android seriously. It's a free product that generates revenues only indirectly by encouraging mobile web browsing via Google's search engine. Meanwhile, Microsoft knows how to manage corporate clients, and corporate IT departments are comfortable with Microsoft products to a degree that they will never be with Google or Apple.

As a value investor, I often get into trades too early. Not matter how I might try to game myself to avoid this, it seems to be hardwired into my DNA as an investor. So it's entirely possible that I am early this time as well.

That's ok. If Microsoft takes longer than I expect to rise to the top, we still get to collect its 3.3% dividend and benefit from owning one of the cheapest major blue chip stocks in the world.
Microsoft is a buy.

Disclosures: Sizemore Capital is long MSFT. Get Sizemore Insights delivered to your e-mail FREE.

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5 Comments

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Visitor - Lead&Hail: As the Macalope says: you are a fool, probably paid by Microsoft
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Visitor - Dick Bacon: Apple has a huge head start in mobile and has hundreds of millions of itunes accounts. They literally cannot make iphones fast enough. Windows Phone is a bust and the Surface will be soon, as well. Face it, Microsoft has Windows and Office and IT, and that's about it. They have no future in mobile.
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Visitor - Jay: “Apple has no durable long-term advantages—what Warren Buffett calls “moats”—to keep most of its customers loyal”
They do. If you already have an iPhone you have to convert them.

They have a range of models with the 4s and 5 and going forward that’s huge. Soon we’ll see Verizon, Sprit, and At&t will start converting regular phone users to smart phone users with free 4s phones.

Everyone who makes an app from here on out will make one for Windows, but they’ve already been making them for Apple, making the next one is always easier than making a first one for a new system. That means efficiently.

“Apple’s insistence on controlling every aspect of both its software and hardware puts it at a disadvantage to a more flexible Microsoft”

This is not as true as you make it out to be. Microsoft will be going down the same road as Apple in controlling apps because neither wants to allow any sort of viruses to filter in. This is a good thing.
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KiraBrecht: Charles: where would you put a stop for a MSFT buy?
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Visitor - Charles Sizemore: I would be fairly loose here; if we're content to milk the dividend while waiting for the stock to realize its full value, we wouldn't want to get stopped out too soon. I would say a 15-20% trailing stop would be fine. You are protected from a large market swoon but still have plenty of room to let the trade work itself out.
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About the Author

CharlesSizemore

Charles Lewis Sizemore, CFA, founder and editor of Macro Trend Investor (formerly The Sizemore Investment Letter), is dedicated to finding superior investments backed by powerful macro trends—before you hear about them on the nightly news or read about them in the newspaper or on the Internet. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal,and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com.

Charles is the co-author of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008); and worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC,  a registered investment advisor.

His academic and real-life experience has given him a unique approach to investing: combining his insights into global macro trends with in-depth investor research. And he has developed a reputation for taking complex issues, recognizing long-term investment strategies, and then finding the hidden investing opportunities that he shares with investors.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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