The antitrust verdict that threatens to break up Microsoft or impose other restrictions spooked many investors today, sending the shares down $15.38 to $90.88, a whopping decline of nearly 15 percent. Shares rebounded somewhat in after-hours trading, to $92.81.
Today's drop had some analysts urging investors to buy Microsoft stock now, while the price is depressed. Investors may hate uncertainty, they say, but it also creates buying opportunities for those who are patient.
"It's a great time to buy Microsoft stock," said Mark Corcoran, research analyst at D.A. Davidson in Portland, Ore. "The antitrust verdict doesn't change the fact that Microsoft is hitting all four cylinders...Money is going to start pouring back into the company, especially from institutional investors, and it's best to get in before everyone else."
Whether Microsoft stock is a good investment now depends on whether you're a short-term or long-term investor.
For short-term investors looking to make money within the next six months, the specter of sustained litigation and negative publicity makes Microsoft as risky as a newly public e-commerce company, some analysts said.
They added that day traders and others who may need to liquidate their investments in the upcoming weeks and months should monitor their Microsoft holdings continually. They should treat the shares as they would a high-risk overseas firm or e-commerce company.
"If you're a trader, get out," warned Terry O'Brien of Branch, Cabell & Co. in Richmond, Va. "In fact, you missed it. You should have gotten out yesterday."
Microsoft's woes helped spark the largest point decline ever for the Nasdaq composite index. The 348-point plunge shaved about 8 percent from the value of the index; it has slipped more than 16 percent since its March 10 record.
Meanwhile, the Dow Jones industrial average gained 300 points--a remarkable climb considering that it also was weighed down by Microsoft and Intel, which were added to the venerable index of 30 stocks late last year. Shares of Intel dipped $1.31 to $130.63.
Microsoft stock still has significant downward potential, some experts warn. Analysts' estimates vary, but many agree that it could hit as low as $75, depending on U.S. District Judge Thomas Penfield Jackson's verdict, released today.
If the judge's words are harsh and suggest an eventual dismantling of the company, the stock may dip to $75 or lower, some analysts said. If the judge's words are relatively lenient, the stock may surge. The price could also fluctuate dramatically based on evolving interpretations of the judge's verdict.
The result: several months of extreme volatility for what was once a bulwark of investment growth.
"I wouldn't consider it a value play yet," O'Brien said. "If I'm a short-term investor, I would wait a little while to see what's going on and to see how the results of the ruling shake out."
John Puricelli, senior technology analyst at A.G. Edwards in St. Louis, Mo., is enthusiastic about the long-term payoff. In November, when Jackson found that the Redmond, Wash.-based company unfairly dominated the software market and stifled competitive innovation, Puricelli changed his recommendation on the stock from "maintain" to "accumulate."
"At that point, we felt all the negatives were on the horizon and that all findings of fact would be negative. We thought they'd lose a settlement," Puricelli said. "But that doesn't change the long-term earnings growth. It's going to be 30 percent (per year) forever."
at a glance
HQ: Redmond, Wash.
Chairman: Bill Gates
CEO: Steve Ballmer
Annual sales: $19.8 billion
Annual income: $7.8 billion
Date of IPO: March 1986
Source: Bloomberg 11/10/99
The new software is intended to give the company a bigger slice of the huge market for business computing. The product's early sales success put to rest criticism that it wasn't reliable or easy to use. Microsoft has said it received an "extremely low" number of calls asking for help with the new system--much lower than for any previous Microsoft operating system.
Norman Fuchs, senior technology analyst at M.H. Meyerson & Co. in Jersey City, N.J., puts the stock at $120 per share within a year. He has a long-term "buy" rating on Microsoft, though he could easily see the stock falling another $10 or more in the short term.
During the past decade and a half, few public companies have performed better for stockholders.
For example, $10,000 invested in Microsoft stock in December 1986 would be worth about $2.7 million today. The company went public in March 1986, selling 2.8 million shares for $21. Accounting for numerous stock splits, those shares sold for the equivalent of about 15 cents.
No. 2 on the Forbes list of the wealthiest people was Microsoft co-founder Paul Allen, with $40 billion. Steve Ballmer, the company's president, was ranked No. 4 with $23 billion.
But Microsoft has competition as a millionaire's minting ground.
Stocks in hot properties specializing in business-to-business online commerce have outstripped shares of Microsoft, which is increasingly seen as part of the technology sector's old guard. And the antitrust verdict and subsequent litigation has tarnished the market's brightest star of the mid- to late-'90s.
Analyst William Epifanio of New York-based J.P. Morgan said the Department of Justice trial will translate into a "long waiting game" for investors, who will eventually win.
"We believe time is on Microsoft's side," Epifanio said. "We remain optimistic about the strength of Microsoft's products and improved market conditions moving forward."