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Things a bit harder for Microsoft


Dear Mr. Berko:

I own Microsoft Corp.at a split-adjusted price of $57, and it seems stuck in concrete in the mid- to high $20s. With consistently increasing revenues and earnings, why hasn’t this stock moved higher? I own 600 shares and I’ve got a huge loss in them. Why?

Please tell me what you think of Microsoft and its future. Do you think this low price is temporary? Should I buy more shares to lower my basis price so I can get even? If you think I should sell the stock, please tell me that, too. I’m so disappointed in its performance this year and I can’t figure out why it won’t get off its low price and move up like it did years ago.

My next request concerns six foreign stocks. All the stocks in my portfolio are American and I’d like to own a half-dozen foreign issues. But they must pay dividends. Would you please recommend some foreign stocks for a total investment of about $35,000? Don’t tell me to buy an international stock mutual fund. Since the latest fund scandal I wouldn’t touch another mutual fund.

H.H., Waukegan, Ill.

Dear H.H.:

The Nasdaq composite index was up about 50 percent in 2003, but Microsoft (MSFT-$27.52) declined 7.5 percent from its high of $30 at the beginning of last year. Yes, revenues are up, earnings are up, management paid its first dividend (16 cents) last year and there’s a better than remote possibility that Chairman Bill Gates might raise the dividend this year. On four occasions since 1997, MSFT has split 2-for-1. In that time frame, revenues have tripled from $11 billion to almost $33 billion in 2003.

However, something seems to happen to the value of a company’s shares when revenues tickle the $30 billion mark: They stagnate for a year or two and sometimes three. It’s an unexplained phenomenon sort of like the Bermuda Triangle. Though the suits on Wall Street expect MSFT to continue growing its revenues and earnings, investors might find owning its stock for capital appreciation to be like pushing a wet noodle up a rocky hill.

MSFT was one of those magnificent flying machines that was comfortable soaring in the stratosphere at 60 to 90 times earnings. I think those high-octane price-earnings ratio days are over for MSFT, and that specious mantle has been passed to other companies. Oh, I believe MSFT will continue to be a leader in the industry, but I also believe that the current and future investors will be looking forward to a P/E ratio between 22 and 29. Those gory, glory days for MSFT could be over.

Though I also believe MSFT’s revenues and net income will continue to grow, I’m not sanguine about the performance of its shares relative to the Nasdaq or the Dow Jones industrial average. Therefore, I’d advise you to sell your 600 shares because I have very strong doubts that MSFT will return to your post-split purchase price of $57 a share for some time to come.

As to your question regarding foreign stocks, all I can say is yuck! It’s said that profits can cross every border, but I have a pathological block in my nerve synapse that makes it difficult for me to recommend foreign securities. I’d sooner invest my money with an American stranger than a foreign public company. That said, if you must invest overseas, here are some suggestions.

Nestle S.A. (NSRGY-$61.5) is a $64 billion Swiss food conglomerate that has an excellent dividend record and yields 2.1 percent.

Volkswagen AG (VLKPY-$6.95) has good potential; its new sports model could really take off. VLKAF pays a 3.1 percent dividend, which may be increased this year.

Abbey National PLC (ABYNY-$19.10), one of England’s most profitable banks, may be a winner. Abbey National has a good dividend record that currently yields 2.9 percent.  Holland’s Heineken NV (HINKY-$38.35) has a 1 percent dividend yield and also makes a good choice. The Netherlands is a very liberal country and they sell a lot of HINKY there.

The Nintendo Co. Ltd. (NTDOY-$11.80) dividend yields 1.4 percent. (However, I must tell you that this multibillion-dollar entertainment company wouldn’t float my boat in a sea of sake.) NTDOY has some good games on the horizon but American competitors I know think it’s overrated.

Yukos Corp. (YUKOY-$42.50) is Russia’s largest company and its oil reserves may exceed those of Saudi Arabia. The shares are down from $66, because Russian President Vladimir Putin imprisoned Yukos’ former chief executive officer and major shareholder Mikhail Khodorkovsky on charges of corruption. YUKOY’s current $1.10 dividend yields 2.6 percent, but future payments may have to be accepted in vodka if the Russian government takes over the company.

Good luck on this foreign junk. Frankly, I’d really rather buy American.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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