Why mighty MS missed the boat

Even in a raging bull market, the former favourite's performing like a limping loser. But are investors reading the wrong tea leaves?

While investors continue to buy technology stocks at a torrid pace, the most prolific technology stock of all time has become something of a leper. Veteran traders will tell you the recent weakness in Microsoft's stock exemplifies the pathetically fragile psyche of today's investor.

In today's momentum-oriented market, one slip-up or even the rumour of a possible misstep can send a stock into slump that erodes hundreds of millions or even billions of dollars in market capitalisation in no time at all.

In Microsoft's case, the November 5 finding of fact ruling by federal Judge Thomas Penfield Jackson hasn't sent the stock into an unfettered nosedive. Ahead of the harshly worded decision, Microsoft shares closed at 91 9/16. Two weeks later, it's trading at around $85 (£53) a whack.

The dip isn't a big deal, especially considering some of the dour predictions made by leading financial analysts ahead of or immediately following the decree.

But it's not too often Microsoft misses a tech rally. Microsoft's shares have stagnated below $90 a share during these past few weeks while the rest of the Nasdaq composite has exploded. Closing at record highs on record volume, the Nasdaq has gained more than 200 points in this same period.

What makes the inert status of Microsoft's stock so confounding is the fact that its normally conservative chief financial officer, Greg Maffei, went out on a limb, telling analysts that their original second-quarter profit estimate of 39 cents a share was "a little low."

If this DOJ thing weren't consuming the world's attention, this bullish forecast undoubtedly would have sent Microsoft shares skyward. In fact, its first-quarter earnings weren't too shabby either. In the quarter, it made $2.19 billion, or 38 cents a share, on sales of $5.78 billion, topping First Call estimates by 4 cents a share.

Yet, Microsoft's shares were trading at 86 5/16 ahead of the October 19 earnings report.Coming off those fantastic earnings and the projection for even better earnings this quarter, Microsoft's stock has actually regressed.

Analysts went back to the drawing board and revised their consensus estimate upward to 42 cents a share. But if you look at its stock chart, you'd swear it preannounced lower earnings.

Since its initial public offering in March 1986, Microsoft's stock has redefined what investors call a "blue-chip" stock. While information technology continues to change at light speed, Microsoft manages to carry on as one of the few consistently spectacular stocks of its time.

In its 13 years as a publicly traded company, Microsoft has delivered six 2-for-1 stock splits and two 3-for-2 splits. Its latest 2-for-1 split came in March.

That performance is why analysts say it's time to stock up on Microsoft."It's a great buying opportunity ahead of a big product cycle," said Chris Galvin, an analyst at Hambrecht & Quist. "There's still a long way to go in this DOJ thing and it's quite possible that it could be resolved in way that makes Microsoft much more valuable than it already is."

Regardless of whatever remedies or penalties or settlements come from the government's antitrust case, the one thing investors can count on is the arrival of Windows 2000 sometime in February.

Customers don't care as much about the ramifications of an antitrust case as they do the productivity of their computers.

"One of the toughest things for an investor to do is buy into a stock when it's out of favour," said Jeff Maxick, an analyst at Madison Securities. "But if you look back at its history, it's always been a good idea to buy Microsoft on its dips."

Actually, it's been a good idea to buy Microsoft any time. "Long term, this is a great time to pick up the stock," Maxick said. "The DOJ case has caused this stock to underperform and it probably won't pick up momentum until after its second-quarter earnings report in January. It's like everyone's been taking their money out of Microsoft in the past couple weeks to buy everything else."

It's hard to believe Microsoft shares were trading at a 52-week high of 100 3/4 in July after falling to a low of 53 3/4 last November.

Time to 'load up'? While most investors are clearly preoccupied by the great unknown, some welcome Microsoft's latest stall.

"It's time to load up," said James Portanova, a computer consultant from New York, following the finding of fact ruling. "Thank you, Judge Penfield. I have had some outstanding buy orders on Microsoft for more than a week now, anticipating they'd lose the first round. Everyone expected them to do so. I'll be glad when the stock price comes down off the mountain for a while."

Thirty-three of the 36 analysts following the stock maintain either a "buy" or "strong buy" recommendation. First Call consensus predicts Microsoft will close out fiscal 2000 with a profit of $1.64 a share.

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