Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Microsoft's Next Move Could Earn You +1,900% |
[http://www.streetauthority.com/includes/article-top-ao.htm]Published:
February 17, 2009
Microsoft said Friday it had hired a
veteran Wal-Mart executive, David Porter, to oversee the development of
brick-and-mortar retail stores. He will report to Kevin Turner,
Microsoft's COO, who also has ties to Bentonville.
Apple changed computer marketing with its hip advertising. It
changed the computer market with its nifty devices, and it changed the
computer marketplace with its stores. Microsoft sees the writing on the
wall, and these hires underscore how serious Microsoft is about
regaining any of the ground it has lost to Apple. Porter and Turner
aren't show horses -- they're work horses. Wal-Mart executives get
things done fast and cheap, and they never lose focus on the customer.
That core competency will be vital to Microsoft's retail execution. Here
are four reasons I think Porter's first step will be to engineer a
merger with software retailer GameStop (NYSE: GME).
1. Microsoft Is Always on the Hunt for Deals.
Though the ill-fated Yahoo merger is the most well known,
Microsoft has put its vast cash hoard to work by acquiring companies
that have something it needs. Over the past two years, MSFT's shopping
cart has been loaded with search, voice and advertising technology.
Certainly Microsoft has the human capital to develop new technologies on
its own, but it's cheaper -- and far faster -- to simply buy it. The
same is true with its stores.
And the fact is, Microsoft can quite literally buy anything it
wants. The Redmond company is one of seven U.S. corporations to have a
triple-A credit rating. It has cash on hand totaling $8.3 billion, and
it has no long-term debt.
2. GameStop Has a Huge Footprint.
GameStop has an international presence that includes 5,264
stores. GameStop's stores tend to be in urban areas, in shopping centers
and strip malls. These aren't destination stores like Wal-Mart; they are
located where people already eat, shop and work. This is precisely where
Microsoft will seek to extend its reach and build its brand. A GameStop
deal would give Microsoft an instant competitive advantage over Apple,
which has only 250 stores. Many of GameStop locations are near existing
Apple stores.
3. GameStop Is Cheap.
GME is trading for only 12 times earnings. As the chart shows,
that's near the ebb. GME's two-year average earnings multiple is 27.
 Though a dramatically reduced P/E usually signals concerns about
future earnings, GameStop doesn't have that worry.
Sales continue to
be brisk. It even did well during the holidays, posting sales
increases most retailers would have killed for. GameStop's EPS
has never declined, and even in the current economic climate,
earnings are forecast to rise.
4. GameStop Stores Meet
Microsoft's Needs..
GME's relatively small stores -- already clean and well-lit -- are
ideal for Microsoft. They're less than crowded and could easily make
room for Microsoft products, display kiosks and demonstration models.
Maximizing store efficiency is something that Porter and Turner learned
at Wal-Mart, which tracks revenue by square inch of shelf space. What's
more, GameStop existing staff would gel nicely. They tend to be avid
computer users, fluent in the lingo and up on the latest products.
GameStop Will be
Acquired at a Premium..
The vast majority of these shares are held by institutions, who
have held on through GME's -46% decline in the past year and are
unlikely to approve a merger that doesn't help make them whole,
especially from a company that absolutely can afford to pay. GME's
current market capitalization is roughly $4.3 billion. Microsoft would
be getting a steal at $10 billion -- the footprint it wants and a
business that produces tons of cash without any debt and doesn't have to
burn cash to develop products. An acquisition at $45 a share would
represent a +70% premium and still value the company at less than its
historical valuation.
Think that's too rich of a premium for GameStop? Consider: Microsoft
offered $31 a share for Yahoo last year when its shares were trading at
$19.18. Yahoo rejected the +61.6% premium as too low, and after one of
the strangest negotiations in corporate history, Microsoft raised its
offer to $33 -- +72% over Yahoo's pre-merger offer price.
A Microsoft-GameStop deal makes sense financially for GME, MSFT and
investors. It achieves overnight a footprint that otherwise would take
years to build. And it marries two compatible cultures: Apple users
aren't gamers, but Windows users are.
Here are the two ways you can play this, depending on your risk
tolerance:
1. Go Long.
Buy GameStop and hope for a takeover
announcement that includes a rich premium.
The upside: It happens and the stock skyrockets to the takeover price.
The downside: The merger doesn't go through. What then?
Well, it's not exactly bleak! All that happens is you will
own shares of a successful earnings machine that you bought
cheap yet is continuing to post ever-improving results.
2. Position Yourself for
Huge Gains with Call Options.
A call option gives an investor the right to buy a stock for a
certain price during a certain time. A July 30 GME call would allow its
holder to buy GameStop for $30 a share until July 18. If the price goes
above that, the call will gain in value. It can be sold to capture the
gain, or it can be exercised to buy the stock, which could then be
resold for a gain.
So assuming an investor were willing to bet on a $45 takeover price,
then an out-of-the-money call might suit his fancy. Here are Friday's
prices of GameStop calls with a $30 strike price:
|
Expiration |
Price |
100 Shares |
Downside |
Gain at $45 |
| 21
March |
$0.90 |
$90.00 |
$90.00 |
+1,900% |
| 21
April |
$1.70 |
$170.00 |
$170.00 |
+782% |
| 18 July |
$2.90 |
$290.00 |
$290.00 |
+417% |
As you can see, the
upside is phenomenal and the downside is modest. The question, of
course, is timing. If the deal doesn't go through, the only chance you
have of coming out ahead is a +15% rally in GameStop shares for an
unrelated reason.
Is that possible? Sure. So is a merger. As to the degree of
likelihood and to whether it's a good investment for you depends
entirely on your risk profile.
[http://www.streetauthority.com/includes/editor-profiles-ao.htm]
Disclosure: Andy Obermueller
does not own shares of
MSFT or GME.
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