Two weeks ago, I asked “is it time to dump Apple (AAPL),” and I think the answer is increasingly “yes.” Though the company remains wildly profitable, earnings missed estimates this quarter, and there is a sneaking realisation that Apple’s competitors are catching up.
But today, it’s not Apple I want to talk about. It’s Apple’s erstwhile PC rival Microsoft (MSFT).
Microsoft was the undisputed winner of the PC era, but the company hasn’t quite found its way in the era of Web 2.0 and social media. The smartphone war is down to two main combatants in software—Apple and Google (GOOG)—and two in hardware—Apple again and Samsung. And despite coming out with a tablet years before anyone else, Microsoft has been left behind on this front as well.
Things are about to change. With the long-awaited release of Windows 8, Microsoft is making a real push into the world of touch screens and tablets.
Apple launched the first offensive in the smartphone and tablet wars, but in a long-term war of attrition it is doomed to lose for the same reasons that it lost the original PC war. Apple has always maintained a closed ecosystem and insists on making its own hardware and software. Steve Jobs’ pigheadedness is the reason why it was the Wintel platform and not the Mac that came to dominate the desktop and laptop markets.
It’s all happening again. Apple again jumped out to a huge lead, but it will lose the war in the end.
And what about Google? I like Google and I personally use an Android phone. But I believe that in a long war it is Microsoft that will win. I question whether Google really takes Android seriously. It’s a free product that generates revenues only indirectly by encouraging mobile web browsing via Google’s search engine. Meanwhile, Microsoft knows how to manage corporate clients, and corporate IT departments are comfortable with Microsoft products to a degree that they will never be with Google or Apple.
As a value investor, I often get into trades too early. No matter how I might try to game myself to avoid this, it seems to be hardwired into my DNA as an investor. So it’s entirely possible that I am early this time as well.
That’s ok. If Microsoft takes longer than I expect to rise to the top, we still get to collect its 3.3% dividend and benefit from owning one of the cheapest major blue chip stocks in the world.
Microsoft is a buy.Disclosures: Sizemore Capital is long MSFT. Get Sizemore Insights delivered to your e-mail FREE.