Microsoft Will Make You Money

By Eric Jackson

RealMoney Contributor

2/5/2010 10:45 AM EST

After releasing one of the strongest quarters in years last month, Microsoft (MSFT - commentary - Trade Now) -- like several other stocks this earnings season -- has been sold off. With Thursday's selloff, the stock was down to around $28 after getting up close to $32 three weeks ago. Yet there are numerous reasons to go long Microsoft at these levels, especially considering what's going on in the rest of the market.

Microsoft has been the Rodney Dangerfield of large-cap stocks for a while now -- it gets no respect. It's hard to believe that this stock got down to below $15 less than a year ago at the March lows. Since then, it's up 82%. For those who've owned the stock over that time, they've also received a fat dividend (currently just under 2%), which will only go up considering that the company continues to throw off cash -- Microsoft had $34 billion in cash stockpiled as of the most recent quarter.

The argument last year -- and still an argument that Microsoft bears use now -- is that this is a stock that has no growth prospects. It reported its first decline in quarterly sales year over year in the third quarter of 2009. Its online services business has continued to lose money and is still nowhere compared with Google (GOOG - commentary - Trade Now) in search.

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Brooksley Born Should Be In, Geithner Should Be Out

By Eric Jackson02/03/10 - 06:00 AM EST

Stock quotes in this article: JPM , AIG , BAC

When Scott Brown won Ted Kennedy's senate seat a few weeks ago, it was a shot across the bow of President Obama from independent voters. Two days later, the president responded by announcing the "Volcker Rule" which will put more restrictions on commercial banks to get out of investing activities and focus more on lending money to their customers.

The president's response showed that he's done a poor job in his first year in office of keeping the support of "independents" -- so-called because they don't permanently define themselves as Republicans or Democrats.

The president understands that, unless he starts winning back these independents and fast, he will face a 1994-style rebuke from voters at this fall's mid-term elections. From a financial reform perspective, he must show voters that he's not a toady to Wall Street -- and I expect he will replace secretary Geithner with Brooksley Born, the former head of the Commodity Futures Trading Commission who sounded the alarm on credit default swaps long before the housing crisis swallowed the economy.

Brooksley Born, former chairwoman of the Commodities Futures Trading Commission

Why replace Geithner? Although it's now common to Monday morning quarterback the dark days of September 2008, questioning how government officials forced a shotgun marriage of Bear Stearns withJPMorgan Chase(JPM Quote), let Lehman Brothers go under, swooped in to rescue AIG(AIG Quote), and then forced through Bank of America's(BAC Quote) purchase of Merrill Lynch, the fact is -- at that time -- the financial world was careening out of control. I don't fault Geithner's crisis decisions (although they certainly were not all perfect).

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Lamar: Advertising Angst

By Eric Jackson
RealMoney Contributor
1/28/2010 12:45 PM EST
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Lamar Advertising Company (LAMR - commentary - Trade Now) is a Baton Rouge-based national outdoor advertising company (with some digital operations), which took a significant hit to its stock price after Lehman's collapse a year and a half ago. Investors sold the stock as it became clear that the economy -- and with it the ad market -- would slump on the heels of the collapse on Wall Street. The stock dropped from $37 in early September 2008 to $14 by the end of 2008.

In the dark days of early 2009, the stock continued its decline, dropping to a March 2009 low of $5.59. When confidence grew in the government's steps to stabilize the financial markets, the worst-performing shares over the preceding six months became the best-performing ones. Stocks like Lamar, which were seemingly near death, rallied aggressively. From Mar. 9, 2009, to Jan. 6, 2010, the stock rallied 500% to over $33. Today, the stock is down to $29.

What was, and still is most worrying about Lamar, though, is not its exposure to a form of advertising now much less in demand (outdoor billboards and posters) than web, TV, or radio, but its debt. Lamar was carrying about $2.7 billion in long- and short-term debt as of the end of September 2009. We'll find out where that tally currently stands in about three weeks, when it releases its fourth-quarter and full-year results. The company's debt is about equal to its market capitalization.

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Volcker Rule Would Make Banks Be Banks

By Eric Jackson, Senior Contributor

01/27/10 - 09:12 AM EST

Stock quotes in this article: GS , C

NEW YORK (TheStreet) -- The proposed "Volcker Rule" isn't about being anti-business, it's about letting market actors do what they're best at.

Let banks bank, and let hedge funds trade. When either one does a poor job, let it go under and not pull the rest of the system with it. That's capitalism.

If bankers want to throw their own profits down a rat-hole with poor risk management, that's their right. Just don't do it with depositors' money

Last week, President Obama announced a series of planned reforms for the financial industry to prevent "too-big-to-fail" bank failures.

The centerpiece of these reforms was the so-called Volcker Rule, which restricts banks from getting into proprietary trading and owning, investing or sponsoring hedge funds or private-equity funds.

There has been much concern and hand-wringing about the long-term impact of these proposed changes since the announcement. The market -- and especially large bank stocks -- took a major hit following the announcement. The fears expressed were that Obama is anti-business and his misguided policies were going to kill off a nascent recovery just as it is starting to gain strength.

Hang on. First, we blame Obama that he, Treasury Secretary Tim Geithner, and Fed Chairman Ben Bernanke are too cozy with Wall Street, and no rules have been changed since the economic crisis began. Now, he's anti-business and his moves to reform the system to prevent systemwide risks are going too far.

Obama, generally regarded as a master communicator, did a horrendous job announcing the Volcker Rule. He came out, made an eight-minute speech, had no documentation to back it up and left after taking no questions.

Worse, his language was imprecise. The vacuum of information has directly led to the gnashing of teeth we've heard since then. Even now, a week later, we don't have further clarification. It's allowed pundits to surmise that the announcement was a knee-jerk reaction to last Tuesday's Massachusetts Senate loss. According to them, he's trying to be the left's populist version of Glenn Beck.

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Apple's Tablet Won't Wreck Amazon

By Eric Jackson

RealMoney Contributor

1/21/2010 1:03 PM EST

With the coming of Apple's (AAPL - commentary - Trade Now) tablet next week, what's the short-term impact on Amazon's (AMZN - commentary - Trade Now) stock price? The short answer: Not much. The longer answer is it might be a good time to re-enter the stock.

Amazon's stock has been on a roll since it released its earnings back in October. The stock jumped from $93 to $114, at which point many investors said the stock had got ahead of itself. I remember one investor who exited after the earnings announcement, who tweeted, "I love the stock but it's now at crazy levels."

It's gotten crazier.

That good momentum carried it through the holiday shopping season and beyond. (Question: If we all continue to increase our buying online vs. in-store every year for another 10 years, can we still call the shift a trend -- or will it be a natural state?) The stock hit $140 a few days after Christmas; it's now off 10% from those levels.

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Putting a Price Tag on Apple's Upside

By Eric Jackson
RealMoney Contributor
1/20/2010 4:01 PM EST

After a conversation with Gene Munster of Piper Jaffray, Henry Blodget has come out with a $1,000 price target on Apple (AAPL - commentary - Trade Now). Call it a current-day version of his $400-a-share Amazon (AMZN - commentary - Trade Now) call back in 1998.

The market liked the call on Tuesday, along with several analyst upgrades, good feelings about next week's Tablet announcement and the prospects of a solid earnings report on Monday. The stock was up 4% on Tuesday, to $215, and it closed Wednesday at $210.81.

We've known for a long time that Apple is not a valued on the basis of fundamentals alone. It has undergone a rapid expansion of revenue and operating profit in the last five years. In the 2004 holiday quarter, Apple reported top-line revenue of $3.5 billion with a net profit of 70 cents per diluted share. The consensus for Monday's earnings announcement is that the company will have a $12 billion quarter with net earnings of $2.05 per diluted share. That's progress.

Since Apple trades at a trailing P/E ratio of 34 (although this will drop later this year because of an accounting rule change in how iPhone revenue is recognized) and at $215 per share, which is beyond the $200 it reached in late 2007, some observers believe this stock is living beyond its means. They're wrong.

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Apple's iSlate Will Be Game-Changing

By Eric Jackson, Senior Contributor

01/20/10 - 06:01 AM EST

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Stock quotes in this article: AAPL , EBAY , RIMM , PALM , MSFT , HPQ , AMZN

Next Wednesday's new product announcement is Apple's(AAPL Quote) worst kept secret.

At this point, we all know that Apple will announce its new tablet computer. We know the Moscone Center has been rented. We know it's to be called iSlate. We know the media have all been invited. Apple knows just how to leak out information is just such a way to create a feeding frenzy among tech reporters and gizmo enthusiasts.

While many tech blogs are focusing on the possible specs for the new device, the majority of mainstream analysts and investors following Apple -- while enthusiastic about the new product - are taking a more measured approach.

What's driven as much if not more excitement in the price of Apple's stock over the past month has been potential holiday upside surprises that will be announced in Monday's earnings, rather than Wednesday's iSlate announcement. This is an oversight.

Let's step back and look at Apple and how much it's grown in the last three years. Top-line revenue is up 52% to $36.5 billion. Operating income is up 77% to $7.7 billion. Over that time period, the iPod has hit market saturation. iMac sales continue to grow, even amidst the economic slowdown. iPhone has also taken market share in the handset market at a blistering pace from zero units three years ago.

Many of us have become immune to yet another new product announcement from Apple. They always have something new, it seems, to announce.

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Lucky Levers of Profit

By Eric Jackson

RealMoney Contributor

1/14/2010 1:48 PM EST

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Instead of rolling the dice with casinos, pull the lever at the slots.

The gaming industry is facing long odds these days: a slow recovery after a brutal recession, cash-strapped consumers and expense-shy businesses. Some of the bigger players, such as Las Vegas Sands (LVS - commentary - Trade Now) and MGM Mirage (MGM - commentary - Trade Now), have placed big bets on growth in Asia's gambling Mecca, Macau -- but carry huge debts. Smaller outfits such as Boyd Gaming (BYD - commentary - Trade Now) are focused on Las Vegas and other smaller locales at home, with the attendant limits of potentially disappointing results if consumers stay cautious.

There are hints of a turnaround, but a shaky one. Nevada's recent November gaming numbers told that conflicted story well. Gaming revenues were up for the first time in nearly two years, yet room rates fell. It's good to know the people who came were big spenders, but bigger volumes would mean more dependable levels of cash flowing through. And that's the conundrum for investors in casino stocks in 2010: sector stocks could double if the recovery keeps rolling, or they could half if it turns up snake eyes.

Gaming is a niche sector with sub-niche players, and the slot companies offer investors another angle of play, one I believe deserves a closer look. The slot suppliers have two trends working for them in 2010: orders for upgrades from existing casinos and growing demand from state and local governments.

The Contenders

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