Consumer Electronics

Will Dell Hold $10 After Earnings? (DELL)

Dell Inc. (NASDAQ: DELL) is set to report earnings this Thursday.  The stock broke under the $10.00 barrier on Thursday before recovering handily.  In fact, as it briefly went under $9.00 Thursday and rose to as high as $11.00 on Friday, that is a 27% rally.  The company was a feature of our weekly “Stocks Under $10” newsletter this weekendlong before we ever knew about the downgrade this morning.  Technically, this is not under $10.00, but there is a reason we featured it there.  Here was the brief synopsis from the newsletter:

If you look around at the computing power which can be bought with anoperating system already loaded with dual core processors and 1 or 2 MBRAM for under $500 and now under $400, the business of selling PC’s ina recession has become almost no different than selling toasters.Moore’s Law has started hosing the business as the cost of technologyhas come down and down and new competitors are getting into stores withlower and lower price points.  Sure, heavy gamers, traders, graphicsdesigners, and mission critical PC users can’t work on entry levelPC’s.  But most can, and if you have looked at the trends and commentsat Best Buy, Intel, Nokia, RIM, and just about everyone else in tech,then you will not have major hopes for blowout growth numbers. 

The good news is that valuations here have reached very attractivelevels, but the bad news is that the values reflect an industry whichis no different than the toaster business.  Why do you thinkHewlett-Packard (NYSE: HPQ) did such a transformative deal with EDS?Dell is a cheap stock, and it may be kept cheap for quite some time.

Jon C. Ogg
November 17, 2008