Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
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Income expert Carla Pasternak's debut issue of High-Yield
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Shares
of Dell Trade 30% Below Fair Value |
Published: January 15,
2007
At this point, most investors are familiar with Dell (Nasdaq: DELL).
Over the years, the company has built a strong reputation by eliminating
the retail middleman and providing inexpensive, high-quality computers
direct to the public.
Today, the Texas-based company is the world's leading direct-marketer of
personal computers (PCs), shipping approximately 36 million desktop and
laptop systems around the world annually. Additionally, the firm
supplies servers, storage systems, software, printers, high-definition
televisions and other related products.
Dell is no longer the growth story it was a decade ago, and the PC
market has grown increasingly commoditized and competitive. For the
first time, the firm's PC unit shipments (i.e. the number of computers
sold) have been growing at roughly the same pace as the overall industry
(rather than exceeding it).
Nevertheless, most would agree that Dell is still arguably one of the
strongest companies on the planet, with annual revenues approaching the
$60 billion mark.
According to research firm Gartner, the number of PC's sold in 2006 rose
around +10% to reach 234 million units. Nearly one out of every six of
those computers (and 1-in-3 domestically) was made by Dell.
However, sales growth in the mature PC business continues to slow, and
analysts expect worldwide unit growth to slip to just +9% this year. And
considering most of those sales will be primarily price-driven, overall
revenues are forecast to be little better than flat -- topping out at
around $200 billion.
Compounding that industry-wide slowdown, Dell has also been hit by a
series of company-specific missteps: disappointing earnings reports, a
massive recall of faulty laptop batteries, and an SEC probe into the
firm's accounting policies. With this as a backdrop, the shares tumbled
around -16% last year, extending a painful -29% slide from 2005.
Despite the pessimism surrounding the company, the competitive
advantages that made Dell a worldwide leader are still in place today.
Best of all, this prolonged sell-off has given value investors the
opportunity to pick up this blue-chip stock at just 20 times trailing
earnings -- roughly half its five-year average.
For all its troubles, Dell still boasts one of the most streamlined and
efficient supply chains in the business, turning over its inventory
every five days -- versus an industry average of fifteen. And as might
be expected, the firm also reaps significant economies of scale from its
size, leading to one of the highest operating margins in the industry.
Looking ahead, Dell will continue to penetrate rapidly-growing emerging
markets, where revenues are projected to grow at twice the rate of those
generated in the U.S. At the same time, there are signs that management
has adopted more of a focus on profitability, rather than a "slash
costs to gain market share" mindset. That strategic shift, combined
with a more favorable sales mix (weighed more towards non-PC products),
should lead to healthy margin expansion over the next several years.
Meanwhile, the highly-anticipated launch of Microsoft's (Nasdaq: MSFT) Vista operating system -- the successor to Windows -- should
spur the sale of both PCs and enterprise systems, as consumers and
businesses alike upgrade their systems over the next several years. In
addition, the introduction of next-generation Blu-Ray disc drives should
also help boost sales going forward.
Dell will remain a heavyweight in the PC industry. But as the company
evolves and adapts to a changing environment, it will become much more
than just a vendor of low-priced computers.
It may not be a smooth ascent, but eventually Dell should win over its
critics and rebound towards our $38 fair value estimate.
Note:
The above article was free advice given by Nathan
Slaughter and Paul Tracy -- the editors of Half-Priced
Stocks. The mission of Half-Priced Stocks is to
help readers identify securities that are trading at a steep
discount to their intrinsic net worth. In some cases this
discount can reach up to 50% or more, giving savvy value
investors the chance to purchase quality stocks for just pennies
on the dollar. To learn more about our Half-Priced Stocks
service, please visit the following link:
https://www.StreetAuthority.com/subscribe-hps.asp |
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
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