The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Just call Microsoft the Seattle Not-So SuperSonics.
Microsoft (MSFT) CEO Steve Ballmer is part of a group that may buy the NBA's Sacramento Kings and bring professional basketball back to the Emerald City. But hoops-starved fans in Seattle (who have to be bitter that their once-sad Sonics are now thriving as the Oklahoma City Thunder) have to hope that a new team fares better than Microsoft's stock.
Shares of Microsoft are trading near a 52-week low. Other than a 3% pop the day after New Year's -- a day when the entire market enjoyed a fiscal cliff relief rally -- there's been little lately to be excited about. It's a bit odd, though, when you consider that some of Microsoft's key partners are starting to rebound.
Struggling PC makers Dell (DELL) and Hewlett-Packard (HPQ) are up 9% and 13% so far in 2013. Intel (INTC), the chip yin to Microsoft's operating system yang, is up about 5%. And Nokia (NOK), which runs Microsoft's Windows Phone on its new Lumia line of smartphones, surged more than 15% Thursday after the company announced that it sold more Lumias than expected in the fourth quarter.
What gives? Sure, Microsoft is nowhere near the powerhouse it once was. Some consider it karma that Apple (AAPL) is now significantly larger than Microsoft in terms of sales and market value. Others find it deliciously ironic that a company once thought to be the poster child for antitrust allegations has been busy accusing Google (GOOG) of monopolistic practices.
But if the new Windows 8 does boost PC sales, and if Nokia's surprise is an indication that Windows Phone could emerge as a legitimate #3 in the smartphone race, it's hard to imagine Microsoft's stock falling that much more from here.
At some point, investors will be unable to ignore just how attractive Microsoft is. The company pays a dividend that now yields a whopping 3.5%. Shares trade for only 9 times fiscal 2013 earnings estimates. And before you utter the words "value trap," consider this: Microsoft is still growing at a relatively modest, if not spectacular, clip. Analysts are forecasting earnings per share growth of 5% this year and 11% in fiscal 2014.
Dell and HP are both expected to report earnings declines this year, and analysts are forecasting yet another year of red ink for Nokia. So if you want to talk about stocks that are cheap for a good reason, look at those three.
Still, Microsoft shares may not move much higher until investors have a better idea of who the company's next CEO will be. Microsoft routinely shoots down rumors that Ballmer will retire anytime soon, but some investors think that Ballmer has outstayed his welcome at Microsoft and that new leadership is needed to get the company back on a more dynamic growth path.
The "Windows" into Microsoft's succession plan got a lot cloudier last year after the surprise departure of top executive Steven Sinofsky, the operating system chief who many thought could be Ballmer's heir apparent.
There's also the fact that the rally in HP and Dell may be short-lived. Investors may be right to be bearish on Microsoft, because HP and Dell could disappoint investors once they report earnings. Morgan Stanley downgraded Microsoft Thursday morning, citing sluggish PC demand and concerns that Windows 8 won't live up to expectations. If that winds up being the case, it's hard to imagine how Dell and HP could keep rallying.
Even analysts who are bullish on Microsoft find it difficult to get too enthusiastic. BGC analyst Colin Gillis, who has a "buy" rating on the stock, authored this hardly inspiring haiku Wednesday for the title of a report previewing Microsoft's upcoming earnings release: "YES, THERE ARE PROBLEMS. TABLETS, SMARTPHONES AND WIN8. BUT IT'S NOT ALL BLEAK."
Microsoft needs to excite investors again. The Surface tablet hasn't done it yet, and Microsoft is still a distant second behind Google in online search despite all the marketing around Bing. The company's Xbox and server divisions are still doing quite well, but Microsoft can't escape the perception that it's a business in slow decline.
But who knows? If the Kings do relocate to Seattle with the help of Steve, maybe investors will find a new appreciation for Ballmer.
At the very least, he can teach the cheerleaders for the new team (The Seattle Windows? The Seattle Butterflies? The Seattle Kinect? The Seattle SuperSonics of Bellevue? ) how to do this. (Amusingly, my Fortune colleague Dan Primack also has this video in a Ballmer post today.)
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
At one point this year, investors were assuming that the market for mobile devices and advertising began and ended with just two companies: Apple (AAPL) and Google (GOOG). They were the Home Depot and Lowe's of MOREPaul R. La Monica - Nov 29, 2012 12:41 PM ET
Nokia's stock plunged after the introduction of the company's two new smartphones, which run on the latest Windows 8 operating system, failed to woo investors.
The unveiling of Nokia's Lumia 920 and Lumia 820 smartphones lacked "positive surprises, carrier announcements or specific launch dates," noted Jennifer Fritzsche, senior analyst at Wells Fargo, calling the company's event Wednesday a "disappointment."
Ahead of the announcement, Fritzsche was expecting that Nokia (NOK) would announce AT&T MOREHibah Yousuf - Sep 5, 2012 2:43 PM ET
I'm going to call all James Carville on you. Because nobody in the media ever does that. Snicker snicker. Google's (GOOG) acquisition of Motorola Mobility can be summed up thusly: It's the patents, stupid!
With that in mind, it's not a huge surprise that Google is cutting 4,000 Motorola jobs. Google clearly doesn't need many of the hardware people at the company since Google was more interested in Motorola's intellectual property MOREPaul R. La Monica - Aug 13, 2012 10:05 AM ET
#StupidStock Move of the Day! $MSFT up 2% today? Isn't $NOK news bad? Isn't $1B a lot for Yammer? And will $MSFT tablet really hurt $AAPL?— Paul R. La Monica (@LaMonicaBuzz) June 15, 2012
Microsoft (MSFT) is expected to unveil some tablet-related news at a big press conference Monday. This shouldn't come as a huge surprise. We all kind of expected that Mister Softee would go after Apple (AAPL) more directly MOREPaul R. La Monica - Jun 15, 2012 3:08 PM ET
#StupidStock Move of the Day! $NOK still up about 4% on takeover speculation? Come on. Just don't see $MSFT or Samsung pulling the trigger.— Paul R. La Monica (@LaMonicaBuzz) June 08, 2012
Welcome to summer Fridays! Nokia (NOK) takeover rumors seem like your classic case of bored trader gossip. Nokia has been struggling for awhile in the mobile phone market. Its new Lumia phones have been fairly well received but it MOREPaul R. La Monica - Jun 8, 2012 3:19 PM ET
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