We had some big action last week in the tech sector - bad results from GOOG and MSFT proposing an acquisiton for YHOO.
I do repent for not picking on the relentless runours on a YHOO M&A upside...in fact Pete Najarian or Guy Adami (don't remember who...these folks from Fast Money, CNBC) re-iterated this prior to YHOO earnings day! The market reacted negatively to MSFT and pummelled it over 6% on Feb 1. YHOO is not cheap at a multiple of 40+ even at the pre-acquisition price, but the potential strength within the company is not small either! 500 million unique users - just imagine what wonders it could do to ad and content revenue if chanelled the right way! Also, look at it this way: In absolute terms, MSFT's offer is approx USD 16 bn over YHOO's market value of USD 25 bn prior to the acuqusition. As compared to this, MSFT's market value has dropped over USD 26 bn compared to pre-offer levels (which was already low at a multiple of 19-20). Also, the market's completely discounting the benefits that could accrue from a massive web audience that a MSN + Yahoo combination would have. A good way to play - MSFT March 27.5 options at 3 looks cheap. MSFT has to correct on the upside after probably a few more days of market jitter. Also, if anti-trust factors or competitor offers come in the way of the offer, MSFT would bounce back anyway! I dont see too much of a downside from this level - MSFT closed at 30.19 today.
GOOG - again, market over-reaction to a perceived threat from the MSFT-YHOO announcement. GOOG simply has too massive a search market % (57%+) and near-dominance in online ad revenues (over 75% market share) to get seriously impacted by an MSFT-YHOO combination. With its aggressive diversification (including the latest bid on wireless spectrum) and ubiquitous brand name, its difficult to pull them down any time soon. GOOG at 38.8 looks very attractive - again March options look good. I dont see too much of a downside here too - GOOG closed at 495.43 today as compared to its highs of over 700 as late as last December.
I also like AAPL at the low 130s - at a multiple of below 30!
Financials got a deserved pull back today - wait for a while more, and you might again have good buying opportunities at C, WB etc.
Subscribe to:
Post Comments (Atom)
Posts
4 comments:
I think Aquantive is a MSFT acquisition and not a GOOG acquired company..
Sorry, i stand corrected. Thanks for pointing this out.
what if the whole market is headed south, due to loss of risk appetite?
do you still think, multiples>25 will be sustainable?
what if the recession story is true, do you still think google and apple revenues will grow?
this is a bullish article which is not taking into account the macroeconomic and market conditions.
I agree with you on the nature of this article! Let's look at these stocks individually:
1) MSFT has been sustaining a revenue and EPS growth of over 24% over multiple quarters. Assuming a PEG of 1 on forward earnings, you are looking at a EPS growth of 18 to price the stock at 31+. I do not think the slow down/recession is going to be as bad that MSFT gets hit worser than that!
2) AAPL - Phenomenal EPS growth over the past quarters due to block buster cutting edge products and high margins. Revenue growth of 28%. At 120-125, the stock is priced at a PE of ~28. If you really hold a negative view on the economy, i would agree this one holds some medium-term risk. However, i dont see much of a risk on a 12-18 month horizon.
3)GOOG - EPS growth of over 50%+ consitently over past quarters. At a PE of 38 at 495 levels, this one's holding the least amount of risk among the 3 - again by a classic PEG=1 thumbrule. I do not believe a revenue stream of online advertising would be as affected by a slow down as compared to TV or other media advertising.
Finally, the calls you take on these stocks - short term or long term depends on your risk appetite and view on the economy. Short or medium term, the judgements are debatable, especially on AAPL. Long term (12-18 months) risk is very low on these stocks at current levels.
Post a Comment