Vista Tops Election "Bounce"

The newswires catch fire on this post-election day. Straight out of the gates, the major indices had traded below the flat line until MSFT came to the rescue midway through the session. Mr. Softee announces that Windows Vista, the new operating system from the software giant, is done and dusted to be shipped to retail customers on January 30 and suddenly the market comes alive. Not even the fact that the Congressional gridlock that Wall Street yearns hangs in the balance could stop the rally.

The MSFT announcement doesn’t do much for the stock price in live action though. Investors have adopted a wait-and-see attitude until Vista starts to ship. MSFT expects consumers to make a “fast and immediate” switch to Vista. However, based on the release dates – corporate customers get it from November 30 – a discernable impact on MSFT’s top-line is unlikely to be seen for several quarters after January.

So the question is: what firm-specific fundamental will move MSFT’s stock before Vista starts to really impact revenue? Although I’m tempted to say Zune and Xbox I think it will essentially be plain old valuation.

The projected earnings that analysts will price into MSFT’s valuation, and thus into the stock, will provide some upside support in the near-time. However, this means that by the time Vista starts to sell as expected by MSFT much of the impact on the stock will have been priced in, unless Vista becomes a blockbuster like XP. In this case the stock will gain additional upward momentum from “earnings surprise”.

With Zune I’m afraid I don’t think this will really do much for MSFT’s bottom line until it proves it can challenge the iPod’s dominance. Xbox itself is still losing money, though this is what MSFT expected. But with market leader Sony about to release PS3 and Nintendo also slated to unveil a new console for the holiday season, will Xbox ever get a chance to turn a profit?

PBW benefits noticeably from a rally in oil prices and election bounce. Political pundits see better days ahead for alternative energy technologies in the next Congress. I happen to agree with the pundits on this one, simply because the current Republican executive has voiced more support for green technologies than the ousted Republican dominated Congress.

For exposure to health-care, and by default exposure to the real estate sector, I’ve finally decided to go with Nationwide Health Properties (NHP) rather than Ventas (VTR). I’m already exposed to VTR through IWR, which coincidentally also has some health-care real estate investment trusts (REITs). I know this is double dipping in health-care REITs but eventually I intend to replace IWR with individual Mid-Caps. For now the ETF will do.

Hopefully, NHP will pull back over the next couple of days to present some buying opportunities. If everything goes to plan, the vacancy in the folio for health-care should be filled by this time next week.