I went with my friend Cobb last weekend to an "investor breakfast". If you have never been to one, they are usually put on by a brokerage or money management firm and are geared towards seniors.
While technically a senior, I'm 58, I like to go to these things because the breakfast is free. So when Cobb, who's 67, invited me, I was all over it.
The one I attended with Cobb, was put on by Raymond James Financial (NYSE: RJF), and just like the one I had attended several months earlier, the food was cold and the coffee was weak. The words "you get what you pay for" came to mind, but I'm a senior, and seniors like free.
At any rate, we ate, and then because we were a room full of seniors, we all had to head to the can.
It was kind of funny actually, because the local Raymond James broker was trying to talk about all of the wonderful investment products Raymond James had and how those products could help our investment returns, and all the while folks were getting up and heading to the can.
One of the nice things about being a senior is that when you get up to go to the can, everyone in the room knows where you're going and they try to time it so they are heading to the can about the time you are coming back from the can.
It's not the same when you're younger and just the saying "heading to the can" makes you laugh. I guess that's what the guy that invented Beavis and Butthead was thinking...hehehehehe, he said can.
So this Raymond James cat drones on and on, and folks are starting to squirm because they're thinking they're gonna be late for their tee times, or their bridge club tournament is getting ready to start, or they need to be at the hair dresser to collect their wives, or whatever. They just know it's time to wrap this up and get on with their day.
Just as the silverware rattling and glass clinking starts to end, the shifting starts. You know, shifting from one cheek to the other. Seniors do that a lot it seems to me, especially when they are sitting in a chair that really wasn't very comfortable to start with. I know that once the shifting starts, things are gonna go downhill fast for the Raymond James broker and so does he.
At any rate, the speakers words are now just one metronomic sound, the geezers are shifting and clinking and just about to stand and start for the exits when in a moment of complete genius on the part of the Raymond James broker, in walks the temp hired to help with the "breakfast".
Since I've seen this act quite a few times, instead of watching the pretty girl in the very short skirt work the room, I'm watching all of the old duffers (as I said I guess I'm in that category) watching the cute young girl.
Her job for the moment is to hand out information packets, but I know that in a few minutes her job is going to change. Like I said, I've seen this act before.
As I rescan the room I realize she could be handing out used paper towels and it wouldn't have mattered. Here was a room full of old geezers with cash and that cash was just about to part from their pockets to Ms. Sweet Young Thing's purse, and it was going to happen faster than you could reseat your dentures.
So the information packets are being distributed and the Raymond James guy is wrapping up his talk and nobody appears to be listening because they are all watching the cutie pie, when all of sudden the Raymond James dude says that if anyone needs help completing their information packet just raise their hand and Vera, Miss Kumquat Valley of 2007, will be happy to help them.
Here's a hint. While we all think we get along pretty good, seniors don't really move to fast. I'm not sure just why that seems to be true, it just does. Maybe your feet flatten out as you get older, sort of like a tire on a car that's never driven.
So like I said, old folks don't move real fast, but brother let me tell you, when the Raymond James guy said Miss Kumquat Valley would help them, hands went up around the room so fast that it generated a breeze! Made me wonder if the Space Shuttle had just been launched.
If you think I'm kidding about how much air was moved, the geezer guy across the table from me damn near lost his hair piece and the guy next to him with the comb over suddenly had three feet of hair hanging over his left ear.
All of a sudden going to the can could wait, and I found myself in a room watching potbellies being sucked in so tight personal emissions were wafting towards the air conditioning return air. I knew that in a few minutes this was not going to be a fun to place to try and breath!
True to form, Miss Kumquat Valley just keep smiling and offering assistance, and, oddly enough, collecting checks. Hell, Miss Kumquat Valley could have gotten most of these old birds to swap dentures, trade supphose, and sing Amazing Grace if she'd wanted to.
Finally the information packets were complete, the breakfast was over, Miss Kumquat Valley 2007 was no doubt thinking about the commission she just made, the air has finally cleared up enough to take a deep breath, and we're leaving.
I notice Cobb is trying to wipe the drool off of his face as we head to the parking lot, which gets me to wondering if the old adage a bird in the hand is worth two in the bush may apply as soon as he gets home. I mean old Cobb looks like he just ran a marathon. Personally, I'm hoping his heart holds out long enough to get me home.
Finally he pulls up in front of my house to let me get on with my Saturday, and as I get out the car, I hand him my information packet. He gives me a questioning look as I explain that the information packet is the same one that Charles Schwab (Nasdaq: SCHW) uses.
He tells me he isn't interested in Charles Schwab, and really wasn't interested in Raymond James for that matter, but he had heard that the breakfast was okay. I chime in and remind him that Vera wasn't bad either, which makes Cobb grin.
But as I start to get out of his car, he reaches out and slides the unused information packet from my hand saying I may be right, may be Vera wasn't that bad. I just grinned and I as slipped out of his car I reminded him that neither were her kumquats.
Wax
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Microsoft Corporation - Andy Gets Wet
It seems that everywhere we turn these days, the buzz is on about cloud computing. There are commercials that send people "to the cloud", and never ending radio spots that refer to cloud computing.
Get a grip folks! There is nothing special about using the internet to create and access computer files. The ability to do that has been around a pretty good while.
Ever heard of Google Docs? Or how about this? Have you ever accessed an e-mail account via the internet from a computer that was not your own? Welcome to cloud computing.
The point we are trying to make is that it’s all a bunch a hooey, intended to make the consumer, or in this case the investor, think they on the cutting edge of some new and unique technology, when the truth is, they aren’t.
Noted investor Arnold Van Den Berg mentioned cloud computing in his recent newsletter to investors, as did much less noted investor Whitney Tilson in his recent presentation to investors.
But what really made us wonder about cloud computing was not that investment advisors were talking about it, but it seemed to us it was being used to justify putting their client’s money in Microsoft Corporation (Nasdaq: MSFT).
Certainly we think Microsoft is a great company. We simply believe, cloud or no cloud, the company’s stock is currently trading at fair value.
Basis
Financial information for Microsoft Corporation is based on the company’s most recent SEC Form 10-K filing, for year ending June 30, 2010, as filed with the Securities and Exchange Commission on July 30, 2010.
What They Do
The company develops and markets software, services, hardware, and solutions that they believe deliver new opportunities, greater convenience, and enhanced value to people’s lives, doing business around the world with offices in more than 100 countries.
Revenue is generated through the development, manufacture, licensing, and support, of a wide range of software products and services for many different types of computing devices.
The company’s software products and services include operating systems for personal computers, servers, and intelligent devices; server applications for distributed computing environments; information worker productivity applications; business solutions applications; high-performance computing applications; software development tools; and video games.
In addition, the company provides consulting and product and solution support services, as well as trains and certifies computer system integrators and developers.
And Here It Is
Normally we would not include the following, but having read the tomes of several investment advisors that think cloud computing is the greatest thing since sliced bread, we just couldn’t resist this little ditty from the Microsoft 10-K.
“We earn revenues from customers paying a fee to license software; that will continue to be an important part of our business, even as we develop and deliver “cloud-based” computing services. Cloud-based computing involves providing software, services and content over the Internet by way of shared computing resources located in centralized data centers. Consumers and business customers access these resources from a variety of devices. Revenues are earned primarily from usage fees and advertising.”
Short-Term Investment
The stock had a recent close of $27.16 with Resistance at $31.58 a 16% increase from a recent close and Support at $26.59, a 2% decline from a recent close.
The current stock trend appears to be upward, recently peaking in overbought territory, and it appears at least to our untrained eye, that the stock should continue to move upward over the near term.
Long-Term (5 Year Hold) Investment
The company certainly has impressive financials, with a Current Ratio of 2.13, an Acid Test Ratio of 1.9, and a Cash Ratio of 1.41, there is little to dislike.
Couple these ratios with a negative Cash Conversion Cycle, Return On Invested Capital of 34%, and Free Cash Flow of $1.86 per share, and an inventory turnover of 13 times a year, and it’s easy to see why investment managers are keen on sticking their client’s money in the stock.
Valuations
Based on our review of the company’s latest annual financial statements, we think the company currently has a Reasonable Value of $36, and have set a Buy Target at $22, a First Sell Target at $42, and a Close Target at $45.
The company has an Enterprise Value of $27, an Equity Value of $27, and for FY10 earned $2.25 per share.
Given the stock’s recent close and the company’s FY10 earnings, provides an Earnings Yield of 8.23%, a yield about 4 times greater than the recent 2.01% 5 Year AAA Corporate Bond Yield.
Final Thoughts
As we mentioned earlier, cloud computing is really nothing new. What does seem to be new is that today, someone has provided a name for this method of accessing computer files remotely.
While the buzz surrounding this method of computer file accessibility will no doubt be perpetuated by almost everyone with something to gain by its use, we simply don’t believe that is going to add any great increase to the current value of Microsoft.
In fact, sorting through all the spaghetti that has become cloud computing, we believe the company with the most to gain from the use of cloud computing is Google, Inc. (Nasdaq: GOOG), via their already in place Google Docs applications.
Accordingly we think new investors in Microsoft are going to be sitting underneath a bit of a dark cloud for the foreseeable future. We just hope they have their umbrellas handy.
Wax
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