Buy Microsoft Now Or Wait 2 Months

| About: Microsoft Corporation (MSFT)

On October 26 Microsoft (NASDAQ:MSFT) will launch its new Windows operating system after introducing it to the press --together with the surface tablet-- one day earlier. It's high time to take a look at previous Windows launches and see how Microsoft's stock performed then.

To get an idea of how Microsoft trades around product releases I took a close look at the previous Windows launches.

Ahead of the 7 Windows launches since 1990, Microsoft outperformed the Dow by more than 13% on average over the 60 trading days prior to a launch. During that period Microsoft underperformed only one time in 2001, which was as you might remember not the best time for tech-stocks but not such a bad time for the Dow. In the 60 day period after a product launch, however, Microsoft underperformed five times out of seven -- on average by some 7%. This is in line with what I read about Apple's stock performance before and after product launches. As you would expect both Microsoft and Apple (NASDAQ:AAPL) rise in anticipation of new products and give up some of those gains after the product is released. (Buy the rumor sell the fact.) In some cases on the day after the product launch there were some huge stock price gains between 4% and 6%, as was the case on the days after Win 3.0, Win 7 and the first iPhone were released, in those cases expectations were exceeded but these were exceptions.

Why buy Microsoft now?

I bought Microsoft recently. For a number of reasons, the least important being that I think there is a good chance of seeing a decent price move before the October 26 launch of Windows 8. Since the stock has gone nowhere since July and is down since September according to the previous pre-launch stock performance there is some serious upside potential. Buying a stock based on what you think will happen to its price in the short term is, of course, not very clever. But this is just one reason why I bought the stock and in Microsoft's case it is the limited downside coupled with my optimistic outlook (see my previous post on Microsoft) that helps me sleep at night.

Here's the rub

In one week, on October 18 Microsoft will disclose its Q1 2013 earnings, which are expected to come in at 56¢ a share. If they miss the consensus estimate, the stock will suffer, in which case I will buy more shares. Regardless of the Q1 earnings I will wait until the 25th before I sell to buy the shares back again after the launch period is over, when the stock returns to the $28-$30 level. If they don't miss the consensus estimate, which is what history suggests, I will still sell my shares one day before launch and buy back later because a rise on the after-launch-day might happen like after Win7 or the first iPhone but I won't bet on it. If everything goes wrong and for some reason (like a general market sell-off) Microsoft's stock will just keep on declining during the next few weeks I will keep the stock since I am bullish on Microsoft in the longer term.


If you want to take a more active approach, and speculate on a few extra points like I do, buy now but be prepared to take a minor hit next week. If you want to play it safe and intend to keep the stock for a few years, then you should wait about two more months and buy then. Microsoft is not a very volatile stock and a great stock to keep. I don't want to suggest past performance is any indicator for future returns but for trivia purposes: If you had bought one share at the Microsoft IPO in 1986 for $21 that would be 288 stocks with a combined value of $8,300 at $29 a share, today, that is 395 times the initial investment. And by the way if you bought Apple at its IPO in 1980 you would have made about 238 times your initial investment (at today stock price of $630).

Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may initiate a long position in Apple and/or an additional long position in Microsoft within the next 72 hours.