Taking Advantage of the Microsoft Warning

By Thursday, January 12, 2012

Taking Advantage of the Microsoft WarningThe floods in Thailand that began in July of 2011 are still being felt today on several levels. On a human scale, it is a tragedy, as over 12 million people were affected and there have been over 600 deaths. It is tragic when innocent people suffer from an environmental disaster.

This terrible event has hit many industries as well. We’ve seen hard drive makers Western Digital Corporation (NYSE/WDC) reduce production due to factories being hit, while firms like Seagate Technology Public Limited Company (NYSE/STX) benefit since they don’t have factories in Thailand. Ford Motor Company (NYSE/F) also announced that the floods prevented the firm’s factories from producing enough vehicles. Seagate is interesting because not only are they not hit by the floods, but they also provide a big dividend yield of almost 3.9%.

As Thailand is a big component maker for large computer firms, the reduction in volume of personal computer (PC) sales has hit Microsoft Corporation (NASDAQ/MSFT), as the firm warned that there would be fewer shipments of PCs than expected. The real question you should ask is: is this a short-term phenomenon or a long-term structural change and will this affect their dividend yield?

The answer is that this is a one-time hiccup for the computer industry, one that long-term investors can benefit from with patience. It will take some time for the supply chains to get back up to 100% efficiency, as some areas in Thailand are still underwater. This disaster will also prompt firms to diversify their supply chains to prevent future occurrences. This could be an excellent buying opportunity to get a great dividend yield and be paid while you wait.

In the meantime, any pullback in Microsoft due to a short-term bump in the road could be a buying opportunity. The company provides an almost three percent dividend yield and are developing their new operating system (early reports are quite positive). This is in addition to their continued expansion in the mobile market.

When you combine a short-term opportunity with a firm providing a solid dividend yield in a growing market, this is usually a recipe for success. One such firm is Intel Corporation (NASDAQ/INTC), which has a dividend yield of 3.27%. The company recently announced a deal to get into the smartphone market with its chips, trying to gain some traction against the market leader for mobile device chips, ARM Holdings plc (NASDAQ/ARMH).

Intel has made a multi-year deal with Motorola Mobility Holdings, Inc. (NYSE/MMI) in which the new smartphones by Motorola will be made with Intel processors. These will be “Android” devices, running the Google Inc. (NASDAQ/GOOG) developed software.

Not only is Intel the dominant processor maker for PCs, far ahead of second place Advanced Micro Devices, Inc. (NYSE/AMD), which has no dividend yield, but they are also actively growing in new markets.

When 10 year treasuries are yielding less than two percent, any pullback in companies with dominant market positions providing a healthy dividend yield could be a great buying opportunity. Don’t be one of the sheep frightened by a loud noise. Look past the short-term bumps in the road and see the entire road ahead of you.


About the Author | Browse Sasha's Articles

Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what... Read Full Bio »

Aug. 31, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.71%
10-year U.S. Treasury Yield 2.14%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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