Wednesday, January 23, 2013

2016 primary: Microsoft vs. Amazon.com vs. JP Morgan


With earnings season for Q4 upon us and with the 2016 presidential race some four years away, this is -- in a weird way -- the perfect time to write about something like this.

This isn't necessarily a comparison of a candidate to a company, but instead, a comparison of a candidate to a company's stock, because as we all know, stocks are somewhat different beasts from companies.

So for tonight, let's start with the Democratic field and the top three contenders on most people's lists -- Joe Biden, Hillary Clinton, and NY Gov. Andrew Cuomo.

Next week, we'll do the Republican front-runners.



JOE BIDEN = MICROSOFT

Both are constantly in the news and mainly for bad reasons (although that might be changing for both, but more on that later).

Microsoft's stock sits around $27/share right now, and has essentially become a dividend play (yield is 3.38%). Everyone knows about it, but very few are buying it as a growth stock.

Similarly, everyone keeps talking about Biden and 2016, but polls still haven't suggested any movement even though he's actually the most visible, potential 2016 candidate there is.

But comparisons don't stop there.

Biden is known for wild claims and odd gaffes, and Microsoft's CEO Steve Ballmer is also one of the wildest in the business.

Just for kicks, google "Steve Balmer idiot", and you'll find plenty of raw material (including this from The Street: "Is Microsoft's CEO Steve Balmer Crazy?").

Then there's an awesome list of "ten absolutely stupid quotes by Steve Balmer" and this famous video wherein he mocks the iphone and wonders who'll ever pay that kind of $ for a phone in 2005.



And, in case you wanted to fish for more, here's more: "No, this is Steve Ballmer looking like an idiot", "Is Steve Ballmer a complete idiot?", and here's someone even comparing him to a "drunken buffoon."

Biden has heard the "buffoon" line plenty, as well.

Now --- the counter is that Biden could be on the upswing, thanks to his role in fiscal cliff negotiations and gun control.

Well, the comparison still holds.

Microsoft is also experiencing a mini-bounce in perceptions.

Sure, Windows 8 hasn't seemed to be the company's savior nor have the Surface tablets, but most think Microsoft's bottomed, and that Surface sales are bound to grow with its very awesome inclusion of Word, Excel etc.,

That's perhaps why Microsoft's share price has jumped about 4.68% since hitting a 52 week low last month, and also why its mean price target (what analysts predict it will be one year from today) is $33.81 -- a healthy jump for a stock with a high dividend.

So really, both Microsoft and Biden have experienced a mini-resurgence.

Having said that, it's still Microsoft and Biden. You can't forget that.

And the point is -- both tend to be chatted up as a top stock/presidential contender, but few think they are, and yet they'll continually be in the news.

There's always someone out there who'll say Biden is on the rise, electorally, and that Microsoft will get its mojo back, but at the end of the day, Microsoft is still Microsoft and Biden is still Biden.




HILLARY CLINTON = AMAZON.COM

This one isn't immediately apparent -- after all, Hillary is a pretty old political figure; Amazon is a relatively new company and growing like crazy.

But here's the key thing they share -- both Hillary and Amazon are "priced for perfection", as stock watchers call it.

Amazon is trading at an unbelievably high 3,610 Price-to-Earnings ratio (The P/E ratio is the relationship between share price and a company's earnings. The higher the P/E ratio, the higher the expectations).

To put that in perspective, Target is roughly 14.

Now why is Amazon's P/E ratio so high and why are people willing to pay so much?

Because everyone thinks -- no, expects -- that it's going to dominate the world. In other words, investors are willing to pay more than the company's earnings dictate, because they expect otherworldly, future returns.

But if Amazon can't deliver?

It'll get ugly fast, and the stock will have a mighty fall. There'll be recriminations, there'll be books about the crash, there'll be soul-searching moments about what this teaches everyone about profit vs. revenue.

Similarly, as a candidate, Hillary is priced for one thing -- the presidency. If she fails, she'll have abjectly failed. Anything short of the presidency is, well, short.

You can pretend that winning the nomination alone would be successful, but to Team Clinton, it wouldn't be, and to anyone who watches these things, she has to win the presidency or she'll be considered a 2016 failure.

And if she fails, there will be recriminations, books about her crash, and soul-searching moments galore -- just like if Amazon.com's stock falls.

Yes, Hillary and Amazon are on parallel paths. They're golden, sure, but if they don't lead to the top, they'll land at the bottom.

 
ANDREW CUOMO = JP MORGAN

Both are from New York, both couldn't possibly be imagined as coming from anywhere but New York (one of Cuomo's problems), and wait, there's much more.

JP Morgan and other financials had a fantastic run in 2012, leaving many to wonder whether they have any breath left.

In June 2012, JP traded around $30/share, which was a 52 week low. Now -- just seven months later -- it's trading at $46/share. That's a 49% bounce! And it's not likely to slow.

Why?

Well, financial stocks, in general, have fantastic fundamentals right now. JP trades at a sizzling 8.9 P/E ratio, is a strong play on the housing sector (which has been red hot), and has an eager ally in Fed Chief Ben Bernanke.

The point is -- JP has had a great run, but still seems undervalued and is poised to go higher.

Well, ladies and gentlemen, may I introduce Andrew Cuomo to you.

He also had a fantastic run the past two years, marked by fiscal reforms, a huge gay marriage win, a property tax cap, and freakishly high approval ratings (he's scored a 70% approval rating in four straight Quinnipiac surveys -- three of which were pre-Hurricane Sandy).

But even with all those wins, he still seems to be undervalued.

He's now making a major play on guns as he maneuvers himself for a possible run, and yet most Democrats still haven't even heard of him, and in a recent Public Policy Polling survey, he only scored 4% in a hypothetical 2016 primary.

That's why he can only move up, and why he might be the best buy of all.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.