Managers didn't toss stock out the Window

NOV 15, 1999
In the months before federal Judge Thomas Penfield Jackson declared Microsoft a "monopoly power," everyone from Silicon Valley hot shots to government pension managers was forced to play the angles in a high-stakes waiting game. If the ruling went against the Redmond, Wash., giant, would its stock tank? And, if so, what to do? Buy? Sell? Hold? The judge, of course, slammed Microsoft for its predatory policies, but for the most part, just about everyone else, including traditionally conservative pension funds, stuck with the stock until the not-so-bitter end, according to an informal InvestmentNews survey. As it turns out, they made a solid bet. On Nov. 5, Judge Jackson issued his findings after the market close, and Microsoft stock was at $90.53. By the end of the day Monday, it was down slightly to $89.94, but closed Friday at $89.50, not far off its 52 week high of $100.75 and well above its 52-week low of $53.75. Microsoft's price/earnings ratio recently has been in the heady neighborhood of 60-to-1. Its market capitalization is a whopping $470 billion. This week state pension funds with large Microsoft exposures, like New Jersey's and Ohio's, remain bullish on the stock. Although some investors still have qualms. "The ruling is coming at a time when Microsoft is losing control over operating systems and office suites," two of its core lines of business, says Neil Toth, investment officer and assistant director at the $54 billion Public Employees' Retirement System of Ohio in Columbus. The Ohio fund owns almost $500 million worth of Microsoft; the company is the largest holding in Ohio's portfolio. Advances in technology, particularly on-line, could hurt the company, Mr. Toth says. "The Internet is taking away control of the market over these two areas." (See related story) The $76 billion New Jersey Division of Investment in Trenton is more concerned "about other tech companies and the valuation of [Microsoft] than the Justice Department ruling," says Brian Arena, portfolio manager and technology analyst. New Jersey owns about $1.8 billion of Microsoft stock -- its largest holding -- and that's after taking a $200 million gain in a partial liquidation of its position before the ruling. Officials are quick to point out, however, that one had nothing to do with the other. Kent Shepherd, a portfolio manager at Franklin Advisers Inc., is "making an inherent bet" that Microsoft is capable of managing the settlement process." Mr. Shepherd manages the $360 million Franklin Value Mark Capital Growth Fund: Microsoft is one of his top five holdings. Banc One Investment Advisers of Columbus, Ohio, moved Microsoft off its "buy" list three weeks ago, anticipating an unfavorable ruling. Banc One managers, who collectively owned 25.2 million shares, aren't reducing their holdings now. But they haven't seen reasons to move Microsoft back onto their buy lists, he notes.

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