What I saw at the Microsoft meeting...

 I (Dan Ferris) attended Microsoft's annual shareholder meeting in Bellevue, Washington yesterday…

After a couple short presentations about Microsoft products, we got to the business portion of the meeting, which is very short and very formal. As is the case with virtually every other corporation in America, Microsoft's shareholders behaved like sheep, casting as much as 99% of their votes in favor of all the proposals recommended by Microsoft's board of directors. And only 26% of them voted for the one proposal initiated by a shareholder. That one would have given all shareholders increased power to oust undesirable board members and back the ones they like.

When the Q&A session started after the formal business meeting, an older woman stepped up to the microphone. She said she's owned Microsoft stock since 1992 and thought it would fund a great portion of her retirement... But the share price is too low, so what's the story? Another shareholder compared Microsoft's share price with Google and Apple, both of which sport triple-digit price tags.

Of course, the issue isn't the share price, it's the valuation. Microsoft is way too cheap. I have my own ideas about why that's so...

 I wanted to ask about the company's capital structure. It's way overcapitalized. That's financial speak for "it has too darn much cash just sitting around collecting dust." The business is clearly a cash-gushing, hyper-profitable force of nature. Windows 8 was heavily criticized before it came out, and it sold 40 million copies within the first 30 days. Anyone who says Microsoft is not one of the most phenomenal businesses in history is simply out of touch with reality.

The Q&A was short and ended before I could raise my question… However, I caught Chief Financial Officer Peter Klein milling around after the meeting… I told him Microsoft is a wonderful business, but that there's too much cash idly sitting around. I said leaving tens of billions of dollars in cash sitting in offshore accounts to avoid paying U.S. corporate taxes was a red herring issue and a distraction to the business of creating shareholder value.

Klein responded that the company is listening to shareholders and taking a measured approach toward changes in the capital structure. He said that's why it has raised the dividend more in the past few years. The first quarterly dividend Microsoft ever paid, in 2003, was $0.08 a share. Now, it's up to $0.23 a share, nearly triple the first payout. So it has raised its dividend a lot (but not enough, in my opinion). Klein also said he'd "take my feedback" on the capital structure.

 Microsoft is a phenomenal, cash-gushing business. At current prices, it's one of the safest, cheapest, and best dividend-growth stocks on the planet.

But it's a typical American corporation. Its shareholders are sheep, who do what the board of directors tells them to do. When one of them starts thinking about his ownership stake and tries to improve the lot of his fellow investors, he's basically ignored.

One sheep wasted our time asking management why it hires IT professionals from other countries when so many people are out of work in the U.S. Fortunately, another shareholder stood up and told everyone how incredibly difficult it was for Oracle (where his son works) to fill some management positions recently. CEO Steve Ballmer and Board Chairman Bill Gates had looks on their faces as if to say, "Are you serious? I gave up an hour of my morning for this?"

It's understandable why corporate managements find shareholders difficult to take seriously. Nobody asked about the tens of billions in cash sitting offshore. Nobody asked why we shouldn't expect another failed acquisition like online marketing company aQuantive, which Microsoft bought for $6 billion in 2007... and wrote down to zero earlier this year. Nobody asked why the company paid $8.5 billion for Skype and why we shouldn't expect it to end up like aQuantive. All the shareholders asked about is what they know. And they only know what's easy to find out: The share price and whatever is in the headlines.

When they're called upon to follow the board's voting recommendations, they say, "baaaaa" and vote yes (or no, or whatever they're told to vote). And then they complain about the share price...

Hey, Microsoft shareholders, if you hate the share price so much, how can you be so in love with the board?

As usual in a democracy (whether political or corporate), the voters get the governance they deserve – good and hard, whether they like it or not.

 I'm sure I'll get a bunch of e-mails asking, "How can you keep recommending Microsoft and then criticize it so much?" The answer is simple. I'm a business owner.

If you own a phenomenal cash-gushing business, you don't sell your business when you find a problem, do you? No. You set about solving the problem or at least figuring out how to deal with it better. If shareholders behaved more like business owners, things would be different. There'd be fewer chances for all the jerks on Wall Street to make easy fortunes by skimming millions off the top of all our pensions and other investments. There'd also be a lot less need for the government to step in and purport to "fix" things.

But that's true of life on Earth in general, isn't it? Where human beings refuse to meet their responsibilities, chaos ensues and opportunities for politicians and other criminals abound. It was ever thus, and ever shall it be as long as humans are, well, human.

So by all means, buy Microsoft at current dirt-cheap prices. I'm certain it'll keep increasing its dividend payout. But do yourself a big favor and be a responsible business owner while you hold the stock.

 The so-called "fiscal cliff" has stolen headlines, driven stock prices down, and caused a panic among investors. The fiscal cliff is a series of tax increases and spending cuts that will automatically take effect on January 1, should Congress not do anything to stop it... But we're not worried.

Dr. David "Doc" Eifrig told his Retirement Millionaire subscribers to ignore the hype. Doc says the changes in tax receipts will be minimal. And he doesn't believe we'll see significant spending cuts…

 Remember when President Obama called Congress' refusal to raise the debt ceiling "financial Armageddon"? What happened? The government raised the ceiling at the last minute. Meanwhile, the stock market bottomed in October 2011... It's 29% higher now.

 We're taking advantage of this overblown anxiety to find great deals in the stock market. Small Stock Specialist editor Frank Curzio says fiscal cliff fears have presented him with one of the greatest opportunities in his nearly 20-year career…

In the past two months, the average small-cap stock is down 11%. Some of the worst-hit stocks in the sector are down 30% or more. But Frank's thesis is clear – "these fears are overblown." In his latest issue, he wrote…

In his latest issue, Frank recommended two small-cap stocks that are trading at valuations last seen during the 2008-2009 financial crisis. Frank says they're so cheap, "they could double from current levels and still be trading well below their 18-month highs."

 Already this year, Frank has closed positions for gains of 31% and 45%, both of which he held for less than four months. To learn more about how Frank is playing this huge opportunity in small-cap stocks, we encourage you to try a subscription to his Small Stock Specialist…

By signing up, you'll get immediate access to Frank's two latest recommendations... And you can try his service with zero risk. If within the first four months of your subscription you decide Small Stock Specialist isn't for you, let us know and we'll give you a full refund. To find out more, click here.

 Investment bank JPMorgan just released a bullish report on gaming giant Wynn Resorts. Shares of Wynn – which derives nearly 75% of its revenue from Macau (the Las Vegas of China) – were slammed by concerns over an economic slowdown in China. We wrote about it here.

 Wynn Resorts trades on the Hong Kong market as "Wynn Macau." And Wynn owns a 72.3% stake in the Hong Kong-listed enterprise.

Shares of Wynn Resorts are so cheap today, you receive the royalties for Wynn Macau and Wynn Resorts' U.S. business for free. From JPMorgan's report (via Barron's)…

JPMorgan has a $133-per-share price target for the stock, which trades for $111.70 a share today.

 New 52-week highs (as of 11/28/12): Guggenheim China Real Estate Fund (TAO).

 The vitriol returns! We knew it wouldn't be long. Send your feedback to feedback@stansberryresearch.com.

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Goldsmith comment: We never apologize for our marketing... It's what allows us to remain independent and deliver the best, unbiased research we can. It also allows us to attract world-class talent to the business.

Remember, to receive the S&A Digest, you subscribed to at least one of our 15 publications… You have unfettered access to the recommendations, new and old, made in that publication. The S&A Digest is a free benefit of that subscription.

But let's consider our housing write-up yesterday… We told you we're bullish on a specific sector. We showed you research to back up our opinion. Then, we told you two ways you could play the sector – both actual recommendations from newsletters.

And yes, we teased a third, unnamed housing recommendation... We think that's a lot of value packed into a free publication. But if you disagree, you don't have to read it… Again, it's free.

Finally, think about this… If you were intrigued by our housing write-up… you might actually like Steve Sjuggerud's True Wealth newsletter. We believe it's one of the best investment newsletters you can buy for any price. Many professional money managers feel the same way. We offer a 100% money-back guarantee... so there's zero risk in signing up to learn about his latest recommendation. You can learn more about accessing the issue right here.

Regards,

Sean Goldsmith and Dan Ferris

New York, New York and Medford, Oregon

November 29, 2012

What I saw at the Microsoft meeting... Doc Eifrig: Ignore the 'fiscal cliff'... Curzio super bullish... Wynn: Super cheap right now?