Portfolio Adjustment: Selling CBS and Comcast; Buying Microsoft

I took the opportunity to upgrade the portfolio Wednesday (love that word, "upgrade"). I sold CBS (CBS/NYSE) at $5.51 and Comcast (CMCSK/NASDAQ) at $12.27 and put the proceeds into Microsoft (MSFT/NASDAQ) at $18.39.

I'll post more about these as time permits -- it's after midnight in my neck of the woods and I'm swamped with non-blogging duties. I've taken a big loss with CBS, and would've held on if the current market wasn't giving us opportunities to get great companies at cheap prices. I liked Les Moonves and his returning cash to shareholders, but CBS may have to reduce its dividend and even limit share repurchases. Which would tank the stock even more.

Fred Hickey recommended Microsoft at $20 in the Barron's Roundtable. Geoff Gannon said buy at $17.50 or less. I'm in-between so I don't feel too bad. I linked to Geoff's thoughts on Microsoft previously. Here's what Hickey said in Barron's:

But some names you could hold through the end of the year. Microsoft is one. At 20, it is lower than 10 years ago, when the company did $12 billion in revenue. Now it does $60 billion.

Meryl Witmer asked here about if it had the same market cap as then. Hickey again:

The market cap is similar because they have been buying back shares to offset the dilution due to stock options. The dividend yield is 2.7%. The trailing P/E is 10, something you've never seen for Microsoft. Operating cash flow is $19 billion a year. Gross margins are 81%, which gives them a lot of flexibility to offset any weakness in the top line. As the economy weakens, Microsoft is able to cut costs.

The market misperceives Microsoft. Its most visible part -- PC [personal computer] operating systems -- is shrinking. Windows is just 28% of sales. Less visible, and growing rapidly, is the server and tools business, at 23% of its revenue, up 17% in the latest quarter. The SQL server database business is gaining market share, and a new virtualization product, Hyper-V, is one of the hottest technologies in the market. The real jewel is the business division, which now contributes a third of revenue. It grew 20% in the quarter. This is Office and SharePoint, a content-management product, and Unified Communications. Information Week called SharePoint a juggernaut. Companies like Pfizer use it to develop wikis and blogs. Microsoft is making a lot of money as a pick and shovel provider to the industry.

Asked about the attempted Yahoo purchase:

They want to be in the search business. Luckily they didn't get it at the price they first offered, but [CEO Steve] Ballmer is on record saying he'd like to buy Yahoo!'s search-advertising business.

When I sold Mueller Water and Office Depot to switch into Cheung Kong Holdings ADRs (CHEUY/OTC), I believe I moved to a much better company available at a cheap price. I believe that's the case here as well. But only time will tell and I could always be wrong.

Comments

[Toucalit Benton]

Great buy at a great price. In addition, five years of consecutive dividend increases.