So is Microsoft (MSFT) a gem in plain sight? According to Brad Hinton, a portfolio manager with Weitz Funds, it certainly is.
During a recent Barron's interview, the value investor explained why he likes Microsoft, calling it a "hidden gem in plain sight."
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The company sells at roughly 9x earnings but Hinton later in the interview pointed out that multiple is pre-cash. It's even cheaper if you back out net cash.
Here's the top ten holdings of the fund family's flagship Weitz Value Fund (WVALX) as of September 30, 2011:
1) Microsoft (MSFT)
2) AON (AON)
3) Berkshire Hathaway (BRK.b)
4) Google (GOOG)
5) Dell (DELL)
6) Wells Fargo (WFC)
7) Texas Instruments (TXN)
8) Conoco Phillips (COP)
9) United Parcel Service (UPS)
10) Tyco International (TYC)
Morningstar: Weitz Value Fund Portfolio
Microsoft has more than $ 5/share of net cash and investments (cash and investments minus debt) on the balance sheet. Taking that into account, the company is selling at less than an 8x multiple of earnings.
Certainly not expensive but, as I explained here and on other occasions, there's just no technology business that I'm comfortable with as a long-term investment.
Adam
Long positions in MSFT, BRKb, GOOG, DELL, WFC, and COP
Related post:
Technology Stocks
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Applying Newton's Fourth Law
Origin of Newton's 4th Law?
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett
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Find good businesses; buy at nice discounts to value; stay within limits & stick to what's understandable (necessarily unique for each investor); minimize trading, frictional costs, & errors of all kinds.
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This site's emphasis? Put simply, it's on finding and buying -- with the long-term in mind -- good businesses at a plain discount to conservatively estimated value; it's on selling shares of those well-bought high quality business reluctantly. The view here is that selling makes sense only when core economics become permanently impaired, prospects have been misjudged, market price not just somewhat but, instead, meaningfully exceed per share intrinsic value, or opportunity costs are high. Buy/sell decisions aren't just an opportunity to increase returns; they're also an opportunity to make mistakes. It's easy to overemphasize the former and forget the latter. The focus here is on minimizing trading, frictional costs, and errors of all kinds; it's on staying comfortably within realistically assessed limits. First and foremost is the view that an investor should never make a specific investment based upon what someone else thinks. In other words, what makes sense to own is necessarily unique for each investor and it'd be unwise to not act accordingly. So, more generally, this site simply attempts to better understand some useful principles and ideas in context of investment. It's about, in a practical sense, what tends to work over the long haul as well as what, at times, gets the investor into trouble. It's not about grand theories in finance and economics. These too often distract from what matters or, worse yet, lead to costly misjudgments. As a result, they are mostly viewed with a healthy dose of skepticism here. Otherwise, the best thinking across disciplines should be learned well then put to good use in a way that's uniquely suitable.
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Notable Quote
"Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger