Purchasing Microsoft Corporation

Today I purchased 1000 shares of Microsoft Corporation (MSFT) at $24.26. My target sell price for MSFT is $27 in 3-6 months and $30 in 6 months-1 year. Please click the predictions link at the top of the page to view my complete list of predictions.

Attempting to purchase Microsoft Corporation

I’ve submitted an order to purchase 1000 shares of Microsoft Corporation (MSFT) at $25. Microsoft is down more than 6% to $25.59 in after hours trading after the company reported an increase in 3rd quarter profit but fell short of analyst expectations.

Here is a quote from an AP article that discusses Microsoft’s results:

For the three months ended March 31, the Redmond software maker reported earnings of $2.98 billion, or 29 cents per share, compared with $2.56 billion, or 23 cents per share, in the same period a year earlier.

Analysts polled by Thomson Financial were expecting earnings of 33 cents per share, on revenue of $11.04 billion.

For the current fourth quarter ending June 30, Microsoft said it expects to earn 30 cents per share, below the 34 cents per share that analysts had been predicting.

Microsoft’s results are inline with my own expectations. I believe the drop in anticipated revenue for the fourth quarter ending June 30th, is a result of upgrade jitters as consumers wait to spend their money on Windows Vista and Vista optimized application software. The company delayed the release of Windows Vista, till early 2007. I believe the current drop in price creates a valuable long-term purchasing opportunity. Short time frame mined investors will seek to place their money in alternative technology investments that appear to be safer and faster growing than Microsoft. For me, what could be safer than investing in the world’s largest software company?

The timing for the drop in price in Microsoft shares couldn’t be better. Here’s why:

The XBOX 360 console is enjoying strong demand and retail stores are only starting to carry ample stock.
Revenue opportunity for the XBOX LIVE service for the XBOX 360 hasn’t been fully realized.
Sony Corporation (SNE) has delayed the release of its Playstation 3 console to the first half of November. The Sony console was originally set to be released spring 2006.
Vista is the company’s first OS update in over 4 years since Windows XP. How quickly people forget the long-term revenue impact Windows XP had.
Investors are underscoring the importance of the technological upgrade. Vista will create cross-selling opportunities for Microsoft’s application software. For example, due to improvements in the WDM, Windows Display Driver Model, and Direct X 10, Microsoft Office can contain front-end optimizations never found in any Windows application instead of a bulk of back-end improvements that I believe the majority of small business and personal users don’t use.
Speculation is rampant for Google Inc. (GOOG), which I consider a competitor to Microsoft. Any problems with Google should drive investors to look for more solidly established software companies such as Microsoft.
The drop in MSFT is also following major drops in Intel Corporation (INTC) and Dell, Inc. (DELL), suggesting an overflow of cyclical fear from slow PC sales that I believe are only temporary.

I initially had some brief doubt in Microsoft due to unknown demand for the recently release XBOX 360. Now that demand for the console is strong, I have renewed interest in the stock. I believe it will be easy to earn a 20% or greater return on MSFT shares in the next year as we approach the release date of Vista. Improvements in INTC and DELL should help fuel interest in MSFT shares.

United Microelectronics Corporation earnings update

The United Microelectronics Corporation (UMC) earnings presentation started this morning at 8:00 am. You can listen to an audio stream of the presentation here. UMC reported 1st quarter earnings of .10 per share, double the analyst consensus of .05. I expect to see shares of UMC reach $3.90 or higher this week. I also expect to see shares of rival Taiwan Semiconductor Manufacturing Company Limited (TSM) up on the positive UMC earnings report. TSM is set to announce 1st quarter earnings tomorrow. The TSM earnings conference call is set to happen tomorrow at 8:00 am.

Crude oil prices and shorting airline stocks

I wrote yesterday about shorting AMR, AMR Corporation and CAL, Continental Airlines, Inc. AMR has a 52 week high of $29.14 and closed yesterday at $24.12. CAL has a 52 week high of $28.90 and closed yesterday at $25.95. I believe CAL is moving up faster than AMR under speculation that CAL is gaining long term market share from bankrupt DALRQ.PK, Delta Air Lines, Inc. and NWACQ.PK, Northwest Airlines Corporation. No one knows if the market share gains will be long term or short lived for CAL if Delta and Northwest successfully emerge from bankruptcy. My target is still Thursday, April 27th, 2006 to short shares of AMR and CAL. I’m looking this week for crude oil prices to stay above $72.50 and for CAL to stay at current prices. I will also consider shorting shares of AMR if the stock rises above $26. I use this Bloomberg page to track the price of crude oil. The page is not a static image, it dynamically updates with a 15 minute delay in real-time prices.

United Microelectronics Corporation and Ford Motor Company update

UMC, United Microelectronics Corporation closed today at $3.77 and reached a high of $3.80, matching my prediction that the stock would hit $3.80-$3.90 this week. UMC closed at its highest price since August 15th, 2005. UMC has also met my price target of $3.60 set on November 11th, 2005. I purchased 15,000 shares of UMC at an average price of $3.17.





Total number of picks since September 22nd, 2005: 23, Completed picks: 15, Winners: 13, Losers: 2 

Total Winners: 86.6%

F, Ford Motor Company dropped 4.92% to close at $6.96. F traded as low as $6.91 matching my prediction that the stock would hit $6.90-$7 this week. I believe we may see further drops if the price of crude oil doesn’t ease up. If F trades under $6.50 this week, I will add shares to my position. Long-term I believe the price of crude oil and gasoline will drop, due to a shift toward alternative energy sources such as corn ethanol fuel and hybrid vehicle technologies. Ford pays a high dividend of 5.5% and I am enthusiastic about the possibility of a turnaround for the company. F is definitely a speculative purchase at the moment, so I would not recommend purchasing the stock for risk adverse investors.

Here is a quote from an AP article about Ford’s turnaround and current dividend:

Morgan Stanley’s Jonathan Steinmetz maintained his “Equal-weight” rating for Ford, but lowered 2006 through 2008 earnings estimates.

“The only things keeping us from an “Underweight” rating are the company’s liquidity to undertake a turnaround, a high dividend yield (with the dividend unlikely to be cut anytime soon), and the lack of an immediate negative catalyst,” Steinmetz wrote.

I believe rising crude oil and gasoline prices will keep F depressed, but open the door for a long-term investment opportunity.

Can someone also tell me why F isn’t an attractive takeover or joint venture candidate for a Chinese or Japanese automaker? Ford’s brand name with a Chinese automaker’s low cost manufacturing capabilities or a Japanese automaker’s process, quality assurance and manufacturing efficiencies should be a stellar combination. Other than legacy liabilities and possible government intervention to prevent a growing Chinese trade gap or Japanese monopoly in the U.S. auto industry, would a deal be possible for Ford?

Watching Continental Airlines, Inc. and AMR Corporation

I’m watching to see if crude oil prices can maintain a mid $70’s level until Thursday, April 27th, 2006. If CAL, Continental Airlines, Inc. and AMR, AMR Corporation stay in the low to mid $20’s, I will likely short shares of the airlines. I believe we will see both CAL and AMR in the $14-$16 range in the next 1-3 months if oil can maintain current levels.

My portfolio predictions for next week

Here’s what I think may happen with the picks in my portfolio,

Up
TSM, Taiwan Semiconductor Manufacturing Company Limited to $11.10-$11.20, TSM reports earnings on April 27th, 2006
UMC, United Microelectronics Corporation to $3.80-3.90, UMC reports earnings on April 26th, 2006
FLWS, 1-800-FLOWERS.COM, Inc. to $8.00-$8.20, FLWS reports earnings on April 27th, 2006

Down
INTC, Intel Corporation to $18.50-$18.70
F, Ford Motor Company to $6.90-$7.00

Unchanged
NT, Nortel Networks Corporation to $2.75-$2.85

This is all under the assumption that TSM and FLWS will report strong earnings, which I am expecting, and crude oil prices staying in the mid $70’s.

Where gasoline and oil may be headed

I caught this chart from a blog called The Big Picture that discusses how far commodities can run. The original source of the chart is located at chartoftheday.com. It’s interesting to contrast the historical price of gasoline compared to today’s prices. What we see is an over 20 year gap since the last time gasoline passed $3.00. The non-inflation adjusted high of gasoline is $2.87, set in March, 1981. If you believe that all things are destined to set new highs, until replacement or advancement occurs, we should see gasoline prices soar past the 1981 high. Although difficult to gauge with hard numbers, media exposure and the distribution of news is many times better than it was in the 1980’s. Greater public exposure to news, compounds the speculative effect of turbulent global events such as terrorist activities or natural disasters.

Here is a quote from this AP press release

“You put all these headlines together, you see the situation is getting charged up and getting out of control. That’s why oil traders and speculators are having a field day — this is exactly the kind of environment that speculators want to operate in,” said Oppenheimer & Co. oil analyst Fadel Gheit.

Light, sweet crude for June delivery rose $1.48 to settle at a record $75.17 a barrel Friday on the New York Mercantile Exchange, after peaking at an all-time trading high of $75.35. The May contract, which expired Thursday, had settled at $71.95 on Thursday.

Accounting for inflation, prices are still about 20 percent below the records reached in 1981, when supplies became tight after a revolution in Iran and a war between Iraq and Iran.

If tensions in Iraq persist, I believe there is a chance for crude oil to break $80 this year and for gasoline prices to hit $4 by early 2007.

Watching Dell, Inc.

DELL, Dell, Inc. is trading lower today on a downgrade from Citigroup. Dell reached a new 52 week low of $27.07 this morning. The company and its subsidiaries engage in the design, development, manufacture, marketing, sale, and support of various computer systems and services to customers worldwide.

I think the downgrade presents a great opportunity to purchase a high quality company as the PC sector faces some temporary weakness. Major jumps in PC sales are cyclical and depend either on season or on available software applications and games to take advantage of new hardware. MSFT, Microsoft Corporation is set to release Windows Vista sometime in early 2007. Windows Vista should be the largest catalyst to drive PC sales growth in the near term future. I believe we will see additional drops in DELL as we enter a slow summer season for PC sales and the market waits for the release of Windows Vista. If DELL drops below $27, I will pick up some shares.

Watching eBay, Inc.

EBAY, eBay, Inc. has dropped today on analyst downgrades and is currently trading under $37. EBAY is down almost 8.5% today and is down approximately 14% for the year. EBAY is approaching the buy price I like at under $35. EBAY is a quick moving stock and has the potential to richly reward investors who buy as the analysts downgrade the company. The company together with its subsidiaries, provides online marketplaces for the sale of goods and services, online payment services, and online communication offerings to a diverse community of individuals and businesses in the United States and internationally. I believe EBAY provides conservative estimates and the company is positioned for solid long term growth.

The reasons the analysts cite for the downgrade is an aging of the platform and competitive pressures from GOOG, Google, Inc. I don’t see any potential competition to EBAY from the likes of Google or other online retailers. I believe eBay’s strength is more than just the company’s technology. I believe the company’s competitive advantages are mainly based on the eBay brand name and the well established internal policy and procedures that are derived from having long term experience in the online marketplace. I believe EBAY is simply too far ahead and too well trusted for another company to make a dent in eBay’s online marketplace. For those of you who don’t remember, YHOO, Yahoo! Inc. launched an online marketplace called Yahoo Auctions that failed to make a significant dent in eBay’s market share. I don’t believe Google will do any better after seeing the launch of Google’s finance page and Instant Messaging product. I am waiting to see if EBAY drops below $35 and I may pick up some shares if it does.

Apple Computer, Inc. update

AAPL, Apple Computer, Inc. is up today on strong reported sales of its iPod music players and a 4% increase in PC sales. I caught two articles this morning that seem to point toward my predictions about Apple and INTC, Intel Corporation.

More on Apple’s iPod sales, taken from this TheStreet.com article,

Apple Computer topped the Street’s second-quarter earnings expectations on Wednesday, but offered more bad news than good in its latest financial update.

The company missed analysts’ revenue expectations and offered disappointing guidance for the coming third quarter. Perhaps more disturbingly, the company’s iPod shipments fell far below analysts’ targets, which had already been revised downward in recent weeks.

More on Apple’s PC sales, taken from this AP article,

A “majority” of the 1.1 million Macintosh computers shipped in the second quarter were Intel-based ones, company officials said during a conference call with analysts. The quarter marked the company’s first to include Intel-based Mac sales.

I guess it’s time to coin a new phrase. I would call the new Intel powered Apple PC’s, Apptel’s or Mactel’s. I’m leaning toward Mactel. I’m surprised I haven’t heard the phrase yet.

Intel Corporation and Apple Computer Inc.

INTC, Intel Corporation traded as low as $18.99, a new 52 week low, before rebounding with the markets rally yesterday. I believe Intel investors are underscoring the importance of the Intel and AAPL, Apple Computer, Inc. partnership. Various sources have pinned Apple’s share of the PC market at 1.8-7%. I believe computers have become a low cost commodity since the beginning of the decade. One of Apple’s competitive advantages is the company’s strength in industrial design. Apple products, such as the iPod and the Mac mini, are seen as trend setting products and enjoy a loyal fan base. Apple originally announced the transition from IBM’s Power PC microprocessors to Intel’s processors in the summer of 2005. When Apple made the original announcement, the company expected to transition only low end computers such as the Mac mini to Intel’s processors by mid-2006 and higher end computers were to transition by mid-2007. A quick look at Apple.com and we already see that the company has successfully migrated the iMac, Mac mini, and the higher end MacBook Pro to Intel’s Core Duo processors. I believe Apple has introduced a new twist to selling its PC’s by offering a free public beta of Boot Camp for download. Boot Camp is a software program that lets Mac users with Intel hardware run the Microsoft Windows XP operating system. Mac users can switch between the two operating systems easily and Boot Camp includes all the necessary Windows drivers for the hardware to function at full speed. Apple has made two choices that have tied together three of the computer worlds biggest powerhouses, the first to use Intel hardware and the second to open the hybrid Apple-Intel PC’s to Microsoft Windows XP. The implications of Apple’s move could be huge.

Several years down the line, Apple could seriously pose a threat to companies like DELL, Dell, Inc. if the right strategy were executed. Think of your options as a mainstream PC purchaser for a moment. Apple can sell you a well designed, moderately priced computer, with the option to run two major consumer operating systems. A normal PC, purchased from the likes of Dell for example, is limited to the Windows operating system. There is currently no way for a Windows PC user to natively run any version of an Apple operating system. Apple has created a one way street that it can control and has decided to open the floodgates to the company’s industrial design catalogue to all PC users. I personally have desired a MacBook Pro and a Mac mini for a while, but the lack of ability to natively run my Windows applications has kept me from purchasing an Apple PC. Needless to say, during my next upgrade cycle, I will definitely consider an Apple product if an interesting design captures my attention.

In the short run, I believe Apple should be able to maintain current PC sales levels and its share of the PC market. Any increase in market share, albeit small or large, is likely to cause the stock price of both companies to rise. I believe analysts are ignoring the bigger picture and will not go out on a limb to recommend either company due to increased Intel powered Apple PC sales. This creates a valuable chance to purchase the stocks before others spot the opportunity.

I would recommend purchasing shares of Intel at today’s prices. I consider INTC undervalued and Intel is a clear winner in its relationship with Apple. I believe it’s a toss-up with AAPL shares. The performance of Apple shares is unclear due to the company’s reliance on the iPod. I would wait towards the end of the year incase iPod sales taper off and a selloff in AAPL ensues.

New Feature

I’ve added a news feature to link to articles that I am reading. I use del.icio.us to manage my links and the amazing Feed Digest to display them. The main page will show the most recent 5 articles that I’ve read. You can access a complete list of all the articles I’ve bookmarked by clicking the News link at the top of the page.

The markets short term direction

I believe the markets will trade mostly sideways this week. I don’t expect to make much headway in my portfolio. I believe strong 1st quarter earnings will be offset by rising crude oil prices and fears over Iran’s nuclear ambitions. Oil has set a new high of $72 today. I will be watching AMR, AMR Corporation and CAL, Continental Airlines, Inc. for an opportunity to short the stocks. I believe if crude oil rises to mid $70’s and can maintain those levels for at least two weeks, I will short AMR and CAL if the prices remain in the low $20’s.

I expect gold to continue to rise in the short term. I see a possibility of the strong bull market for gold coupled with Iran’s nuclear plans propelling gold to mid $600’s by the beginning of the summer. I am looking for a pullback to buy AUY, Yamana Gold, Inc. I may have missed the chance to buy AUY when gold was hovering in mid $580’s. Gold is currently trading at $615.50.

Taiwan Semiconductor Manufacturing Company Limited update

I am setting a new price target for TSM, Taiwan Semiconductor Manufacturing Company Limited. TSM passed my earlier price target of $11 on January 9th, 2006. My new target sell price is $12 within 3-6 months and $12.50 within 6-12 months. TSM last closed at $10.55 on April 13th, 2006.