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Connecting the Dots

Date: Tuesday November 22, 2005
Where: Best Buy in Kalispell, Montana

What the hell am I doing out here!

It's 6:45 in the morning and I am standing in a very long line.

Earlier, I rolled out of bed at 5:30 A.M., showered, dressed, filled my coffee cup, warmed up my car, and drove 25 miles to go stand in a line.

A very cold line.

The reader board on the bank I drove past said it was 31 degrees...but it feels even colder than that.

Intermittent flakes of snow are falling on my head, my nose is running, my toes are starting to go numb from the cold, and my coffee turned cold about 15 minutes ago.

I can't complain too loudly though. About a dozen hardly souls at the front of the line had been in line since 10:30 the previous night and spent the night in a tent.

In November! In Montana! Where the nighttime low hit 27 degrees!

I thinking to myself, "I went to college and run a successful business. I'm 49 years old and the father of four wonderful kids. What in the hell am I doing in this line at 6:45 in the morning, in the freezing cold, at the end of November, in northwest Montana?"

I tell you exactly what I'm doing. Like millions of other parents across the country, I am standing in line to make sure my sweet little boys will have this year's red-hot toy of the year under our Christmas tree.

The store I'm standing in front of is a Best Buy and the toy I'm talking about the Xbox 360, Microsoft's new generation video game console.

All across America, electronic shops opened their doors at midnight to throngs of eager youths and parents hoping to snag the new Xbox console.

==> More than 200 shoppers braved rain and chilly temperatures for 30 hours in front of Best Buy in midtown Manhattan.

==> GameStop, the nation's biggest video-game retailer, sold out two weeks ago.

==> On Ebay, units were going for as much as $1,225 -- more than three times the retail price.

==> In Bellevue, Washington -- the home of Microsoft -- one man had been standing in line for five days to assure he wouldn't go home empty-handed.

==> In San Jose, shoppers were in line so long that ambulances were on hand in case any gamers passed out and street vendors were selling popcorn and doughnuts.

What's behind all the hype? Unbelievable graphics.

The graphics are so crisp and sharp that you can see individual blades of grass rippling in the wind, beads of sweat on player's faces, and amazingly realistic blood spatters that are cinema quality.

These great graphics are courtesy of a custom-designed, turbo-charged processor chip from IBM and revolutionary graphic chips from ATI Technology (a separate success story by itself).

Additionally, Microsoft has 18 new video games lined up for release, three of which -- Kameo: Elements of Power, Perfect Dark Zero and Project Gotham Racing 3 --- are produced by Microsoft itself, which means even more profits.

Lastly, the Xbox 360 can be connected to the Internet and permit kids to engage in mult iplayer online gaming, buy virtual gear for virtual characters, enter tournaments, compete for prizes, challenge other players in ranking ladders, and build a global reputation.

An Xbox Live Gold account goes for $7.99 a month. After Microsoft signs up my and a couple million other kids, the recurring revenue will amount to hundreds of millions of dollars a year.

No question -- the Xbox 360 is a "must have" game of the holiday shopping season.

As you probably guessed, I am a big fan of Microsoft. My Stock Market Dogs subscribers own call options on Microsoft as well as my money management firm...and they are doing quite well, thank you.

More importantly, I believe that investors are grossly underestimating the impact of the Xbox 360 and Microsoft prospects going forward.

Investors are overlooking the mega-transformation of Microsoft from the world's greatest software maker to one of the world's greatest hardware makers.

The reason is simple: the Xbox is much, much more than a video game console. It is the centerpiece of Microsoft's strategy to expand its dominance from the office to the living room,

"In the living room itself, Xbox 360 is our centrepiece and a product that redefines what goes on there," said Bill Gates.

The Xbox 360 is a kick-butt gaming system, but is also as a family entertainment and communications center. The Xbox 360 can also play CDs and DVD movies, send and receive email, voicemail, and text messages, has three USB connection ports, which permits it to be connected to digital cameras, MP3 music players (including the Apple iPod), or a Microsoft Windows-equipped PC.

In a matter of months, the iPod help Apple make billions of dollars and forever transform the company. The Xbox has all that potential and even more, which is why I expect Microsoft to hit $50 within 18 months.

Microsoft appeals to my cheapskate side too. It is selling for only 18 times forward earnings, is sitting on $37 billion dollar of cash, pays a 32-cent a share dividend, and has a "B" rating from Weiss Ratings.

Microsoft isn't just the seller of the hottest holiday toy of 2005, I also think it is the best way to participate in the Santa Claus rally that has been going on.

You're going to hear a lot about the big Thanksgiving sales and be tempted to jump into some sexy-sounding retail stocks bragging about gangbuster sales.

Don't do it!

Microsoft stock is certainly an unconventional way to play the Santa Claus rally, but I think it is the very best way to do so. Microsoft --- not the traditional retail stocks --- is my #1 way to beat Santa Claus at his own game.

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