Microsoft Buyback

Microsoft (MSFT) bought much less stock than they thought into their tender the target was $20 billion they received only $3.8 billion in takers at $24.75.  This is great news for the stock since it means few holders think the stock is highly valued.  The stock popped up right after the tender announcement.   The company used the remaining $16.2 billion of unused funds from the tender to increase the ongoing buy back authorization.  That's a total of $36.2 billion over the next five years or 1/7 of the current market capitalization.

I was over my normal full exposure in MSFT and did not tender any of my shares but did sell part of my position at $25.19 into that first spike up in prices. As I was on vacation, I left a Good-Til-Cancelled order and sold too soon.  

I still hold my full position. I like the stock here ($26.12) but see no reason to go above my normal position maximum.  The current p/e (price earnings ratio) is high at 21 but I think we will see a pop in earnings as we approach year end for the normal increase in all computer business stocks.   According to First Call earnings estimates, the forward p/e is only 15.6.  Now that is a p/e at which I would love to own Microsoft.  Also, the new operating system rollout at Microsoft always means higher earnings over the next year.  So I expect earning to increase.  Barring a dramatic price increase (around $30) I plan to hold the position through the end of the year. 

I'll wait until everyone starts talking about the demise of Windows again and the stock falls 10-20%% before I add to my position however.

Disclosure: I currently own MSFT.  I am also shart January, 2007 30 strike calls against approx 1/4 of my position.

Disclaimer: Nothing in this blog is meant to be a recommendation to buy or sell.  I do not give investment advice.  Do your own research.  Do not rely on anything in this weblog to make investment decisions.  I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.