Posts Tagged ‘DELL’

  • Sure, It’s Down But Is Dell a Buy?
    , October 2nd, 2012 at 12:36 pm

    The stock of Dell ($DELL) has gotten clobbered over the past few years. It’s now under $10, and it was over $18 earlier this year. Any smart investor has to be wondering if the stock is a good buy at this price.

    I bring up the case of Dell because we often see similar scenarios in investing. A formerly great stock is way, way off its high. Many good stocks to be are ones that are down. But not all stocks that are down are good buys.

    Dell is clearly a company in trouble. But we do have to remember that the company is still profitable. Going by my World’s Simplest Stock Valuation method, Dell is currently going for half its fair value. Of course, that’s just an estimate. But accept for now the premise that Dell is going for less than most reasonable valuation models. Well…that still doesn’t mean that it’s a good buy.

    Stocks aren’t like professional athletes who have hot or cold streaks. If there are big problems at a company, they usually aren’t so easy to fix. Starbucks ($SBUX) did an impressive turnaround and so has Ford ($F), but those are the exceptions. Big problems like to hang around and drain a company.

    I’m a cautious investor so I don’t even try to time the exact bottom for a stock. A trend always runs much further than you think it could. But Dell has done one thing that I like very much: it initiated a quarterly dividend of eight cents per share. The company shouldn’t have much trouble covering that payout. As an investor, that guarantees us at least some money back.

    My strategy would be to choose an interest rate where I’d be comfortable owning Dell. For now, I’d say 4% is enough comfort. That translates to a price of $8 per share. If Dell wasn’t paying a dividend, then I wouldn’t even consider it.

  • Still Staying Away from Dell
    , August 22nd, 2012 at 12:37 pm

    I wish I could like Dell ($DELL) more than I do. The cheap price is tempting and I wouldn’t be surprised to see the shares rally from here. The problem for me is that by buying Dell here, I’m taking on more risk than I need to. One of my fundamental rules of investing is to never take risks that I don’t need to. Last month, I said I was staying away from Dell and that’s how I feel today.

    Warren Buffett said, “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” That’s my thought about Dell. The company just beat earnings by five cents per share. This is a good example of the quarterly earnings report not meaning much. The big news was that Dell said it expects earnings for the year of $1.70 per share which is down from the previous forecast of $2.13 per share they gave in February.

    Earnings downgrades are like cockroaches: there are usually a few more for every one you see. Companies aren’t like athletes who may go into a slump or have an “off day.” If a company lowers its guidance by a lot, there’s probably a major reason why, and that reason isn’t easily fixed.

    Dell, once the world’s top personal computer maker and a pioneer in computer supply chain management, is struggling to defend its market share against Asian rivals like Acer and Lenovo and consumers’ fast-growing adoption of tablets like Apple’s iPad in place of PCs.

    Dell forecast that its revenue would slide 2 percent to 5 percent in its fiscal third quarter from the second, to $13.8 billion to $14.2 billion. Wall Street had been expecting third-quarter revenue of $14.85 billion.

    It is predicting earnings of “at least” $1.70 a share for fiscal 2013, compared with a previous forecast for more than $2.13 a share.

    “People had already expected them to take down numbers, but I think the level to which they are taking down numbers is pretty severe compared to expectations,” said Shannon Cross, an analyst at Cross Research.

    Dell’s chief financial officer, Brian Gladden, said in an interview that the company had tempered its outlook for the fiscal third quarter partly because it expected distributors to hold off on buying new computers before the late October release of the latest version of Microsoft’s Windows operating system.

    Using $1.70 or earnings compared to the new stock price of $11.50 makes Dell appears attractive. But I’m not convinced. I just don’t see much coming out of Dell in the way of growth. Until I’m convinced that Dell can increase its earnings at a stable rate, I don’t see much value in the shares.

  • Why I’m Staying Away from Dell
    , July 9th, 2012 at 12:23 pm

    One of my more embarrassing investments was Dell ($DELL). I still have nightmares. I totally missed the story going on there and I rode the stock to a big loss. But with investing, we always want to learn from our mistakes.

    Dell’s stock currently appears to be a very good bargain, but I want to tell you why I’m not going near it. Wall Street currently expects the company to earn $2.03 per share for the fiscal year ending in January 2014. That means Dell is going for just over six times next year’s earnings. But those estimates used to be a lot higher.

    In May, Dell’s earnings report was a complete dud. They earned 43 cents per share which was three cents below estimates. Wall Street hacked the stock from $15 to $12 per share.

    Dell is a good example of a stock that appears to be a deep value stock, but we haven’t yet seen signs that the profits are still strong. Investors shouldn’t be drawn to Dell solely by the low share price. Remember that a trend will mostly likely last longer than you thought possible.

    I have no interest in trying to pick the exact bottom. I can’t do that and I don’t know anyone who can. But I can spot a troubled company that’s able to muddle through. Until Dell gives us solid evidence that its business is still growing strongly, then I won’t go near it.

    Value investing isn’t just about price. I’m perfectly willing to have someone else make the first 20% or 30% in a stock. What I want to see is proof of a strong business. Note how I’m still a firm believer in Ford despite all of its troubles. The reason is that the firm’s business is fundamentally sound. I was also impressed that they paid a dividend. Dell could improve its image in my eyes if they did the same.

    The equation is price and proof. We need to see both.