A possible buying opportunity. Dell is already negotiating with Asian supplies to incorporate more of their components into the PC. This will lower the cost of the PC to Dell which will mean Dell can be more competative in a very competative, retail price cutting environment. Sales of PCs to the consumer went very well this Christmas. There evidently many people who want to participateon in this "PC thing" and the Internet when they see web addresses displayed by their favorite news station. So the lower prices will benefit at the very least those PC makers selling the the consumer market, but also will help them compete in the business market. Business can be focused on the cost of PCs too, particularily the smaller sized businesses.
So since their new Asian supplier will be able to lower their cost, this will increase their profit margin. Now they can lower their price and stimulate PC purchases and obtain more of a slice of the maket pie. There will be a lag in time between now and when this happens in terms of financial results. But when it does, IMO it may invalidate this profit projection relative to other companies, and that is what counts, the comparison to other companies. Also, this stock price projection is implying P/E multiple expansion. This can happen only if DELL can continue to outperform their peers by a larger margin. Because with the anticipated eanrings slowdown, invetors may be willing to pay a premium for the companies that continue to outperform and deliver good earnings growth in comparison to their peers. P/E expansion also comes during the later phases of the market cycle which when it happens will be another sign that this old bull market is winding down. However, there can be periods of very good profit opportunity for the short to intermediate term investor before the start of a long term bear market arrives. IMO I expect a long topping pattern to this market before starting its long term bear phase. This topping pattern can still provide many opportunities for the short term trader.
I also want to note that Dell, along with IBM, SUNW, and others, is one of the stocks that I understand have weathered the high-tech selloff by the institutions very well. This is a good sign. I think it will be a very selective stock market as far as the high-techs are concerned.
Bob Graham |
