TLDR Summary
Microsoft is one of the best companies in the world right now, in my opinion, and it's trading at a bargain basement price. For a market cap of (currently) about $200bn you get about $50bn in cash and equivalents right off the bat and a company that made $23bn profit last year. Net of cash, that's a P/E of about 6.5. This is a company that has a great track record of growth, astronomical ROEs and ROIs, huge net margins and a virtual monopoly in its core area. Why is it so cheap? Two main reasons I think really - the market believes that PCs are dying and microsoft faces big challenges from Google, Apple etc and cloud computing is going to kill it. I don't buy this; I think Microsoft is too embedded for anyone to really challenge it in its core areas and these fears are ridiculously overblown, not to mention that Microsoft already has its own cloud computing solution so it isn't going down without a fight. Microsoft is a huge cash generating monster and is buying back shares like there's no tomorrow with a small dividend too. A number of hedge fund managers I respect also believe this (Einhorn, Klarman etc) and have big long positions on MSFT. My one hangup about Microsoft is the risk of it using its cash in stupid ways - like its recent acquisition of Skype at a stupid price.
I think this is actually basically everything I want to say about this investment case as I believe it's this simple - big cash cow sells dirt cheap.
Risks
1) Being a tech stock there's always the risk that Google or someone does eat its lunch, but I'm banking on that not happening.
2) Microsoft finds stupid ways to spend the cash it generates.
3) Currency risk - it's my one foreign share but I'm willing to tolerate this.
Long @ 1,493.20p
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