Microsoft's share price has bumbled along going nowhere for the past decade, while the value of Apple and Google shares has rocketed to the heights. It might therefore be a surprise to find out that Microsoft is the technology stock "most owned" by "successful value oriented 'super investors' such as Warren Buffett and Bruce Berkowitz".
According to a table at Seeking Alpha, 23 of the 49 super investors tracked by Dataroma hold Microsoft stock. The next most popular technology stocks are Cisco (13), General Electric (12), then Dell, 3M and Intel (11 each). Neither Apple nor Google appears in the Top 10.
Dataroma's page reveals that Microsoft is third in the table of "Top 10 stocks by %", eighth in "Top 10 buys last qtr by %", and second in " Top 10 buys last 6 months by %".
We don't know why these guys are buying unfashionable tech stocks, of course, but they have some appeal on the traditional measure of their price-to-earnings ratio. Microsoft has a P/E of 10.77, Dell of 11.29 and Intel of 10.34. This compares with P/Es of 19.72 for Apple and 21.71 for Google.
The poster, known as UltraLong, says:
"In terms of profitability, Microsoft, Intel and Texas Instruments (TXN) stand out. They all provide over 20% return on assets, over 25% return on equity and have gross margins north of 50% and profit margins between 20-30%. They are also low on debt."
Declaring his interest, UltraLong says he is long on Microsoft, Cisco and Intel.
Ycharts.com, also at Seeking Alpha, recently pointed out (in Microsoft: Undervalued and Attractive) that "in their heyday MSFT shares traded at 40 to 80 times earnings", and that the current P/E was better than it looked because the company has $41 billion in cash. Ycharts.com wrote:
"Since Steve Ballmer is so good at holding onto his company’s treasure, it’s reasonable to count on the company holding about $5 a share. If you pay $25 or $26 a share for Microsoft, you’re really only paying $20 or $21 for the company. Now take another look at that P/E ratio. Subtract Microsoft’s cash-per-share from its stock price before dividing by its earnings. Thus Microsoft’s real P/E isn’t 10.4. It’s more like 8.5. Astonishing."
Looking at it the other way round, Ycharts reckons the price-earnings yield is 11.5%, which is almost twice what US investors get from municipal bonds.
Of course, those buying Microsoft stock could be missing out on the rapid increases in the stock prices of Apple, Google and other companies. Worse, the value of their holdings may be hit by a decline in Microsoft's share price, which has fallen by 12.8% over the past 12 months. Those known as "momentum investors" (back the horse that's winning) will certainly not be buying MSFT.
Declaration: I don't own shares in any of the companies mentioned, I have absolutely no intention of buying any, and I am not making any recommendations either way. Fact: shares go down as well as up.