The Digital Home: A 360 View
11/04/2005 12:00 am EST
"We are not trend chasers; if anything, we could be called anti-trend chasers, as we tend to avoid stocks that everyone else likes," says Mark Mowrey, editor of The TechValue Report. To play the "digital home", he sees valued in Microsoft, a stock everyone "loves to hate".
"Bill Gates has said that the tech economy has a penchant for powering through economic downturns and has the ability to continue to innovate regardless of what the economy is doing. I agree. And given my value focus, I am not one to skip out of the market when downturns come. In fact, especially within the tech space, downturns tend to increase the number of stocks on our buy list and give us more opportunities to invest. So no matter what is going on in the economy we are always finding places to put our money to work.
"Overall, I tend to get excited about technology, and like many, want to invest in the ‘newest and coolest’ things. But it’s a challenge being a value investor in the tech sector. I’ve learned over the last ten years that every time I try to chase a trend, I got burned. So the challenge I have learned as a value player is to find those select stocks that allow you to take advantage of these trends but, at the same time, are trading at multiples that are attractive enough for us to ‘take a bite’.
"One major developing trend is digital media, and the company that I think is best poised to take advantage of the significant growth in this area is Microsoft (MSFT NASDAQ). This is the perennial ‘love to hate’ company, like the J.R. Ewing of tech. But we think folks should get over it. The company will continue to dominate the Windows operating space and the Office productivity software area. Both of those business, in our opinion, will continue to generate a tremendous amount of cash for the company, which will continue to support its dividend, which we love, and the ability for the company to invest in new growth opportunities.
"Microsoft is constantly being faulted for an inability to be innovative and, as a result, I think many investors have been missing what this company is able to do, primarily in the 'digital home'. The firm's role in this area started several years ago with an ugly gaming console called the Xbox. The company didn’t make any money on this, but I think it was a great first attempt for a company coming out of nowhere to enter a space that was already dominated by Sony and Nintendo. This time around, however, they have designed the system to not only play games but to be a central hub for all of your digital media within the home.
"I don’t think I’m alone in wanting to take my 300 music CDs and put them in one storage system in my house and be able to stream that music through my existing audio system – at the same time that I can look at CD covers on my TV. I want to do the same thing with my video DVDs. Yes, there are already ways to stream audio and video from a computer or laptop, including Microsoft’s Windows Media Center edition, which operates from your home computer. But I want to hear audio through my hi-fi home audio system and watch video on my home TV. That is exactly what Microsoft is now doing with the new X-box 360.
"The Xbox 360 will be the first machine that will not only replace my DVD player, but give me immediate access to all my digital audio and video content, including movies and music to my own photos and home videos. Further, in a move that it has not really been known for in the past, Microsoft has now designed its new Xbox 360 to connect with products from other companies. These kinds of growth initiatives from Microsoft are what make me really excited about the stock over the long term. What makes me excited right now is its 1.3% yield and the fact that it trades at 16.5 times 2007 earnings. The growth is still there at Microsoft. I believe investors have forgotten that this is still an extraordinary and innovative company."
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