Another DELL Pan by an interviewee in this week's Barrons. Seems like he got lucky with a Dell short. Maybe, he'll try again and help fuel the next spurt upwards.
What these guys don't seem to realize is that all of these "free" PCs are generating huge growth in demand for servers to keep them busy.
And guess who's getting its fair share of the server business. And guess who'll get the lion's share of the growth once Merced makes it into servers.
Hoping for a humongous short position before this becomes obvious to these braintrusts. ;-)
Ian.
An Interview With Matthew J. Diserio -- As managing partner of Diserio Capital Management, his Ponte Vedra, Florida-based hedge fund, Matt tends to hold 25 long positions and 25 shorts.
interactive.wsj.com
...Q: Briefly, what don't you like?
A: I started shorting Dell Computer early this year with the stock in the high 40s. It fell into the low 30s, and we covered a fair amount of our position. Recently it was 40. I still think it could ultimately trade down into the mid-20s.
Q: Why?
A: First, it's expensive at 70 times earnings, five times revenues and 35 times book value. Second, it is a major maker of personal computers, a business where obviously there has been very significant downward price pressure, especially over the past year. Dell's average selling price is in the $2,600-perunit range.
But what really interested me was their $100 billion market cap, and a fairly limited number of suppliers to it. There are really less than 40 major ones. I typically try to contact major suppliers to customers and competitors of my shorts. We were able to get some input from the vendor community that shipments to Dell of certain products were slowing early last winter. This gave me confidence that I wasn't just shooting from the hip.
I really believed that Dell wouldn't be able to continue to beat the Street's quarterly earnings estimates, as they historically had. So I'm not surprised that they haven't been beating their numbers. Another plus is Dell's monster market value. We didn't have to worry about the company being taken over.
The other thing that gave me some confidence was, for the first time in a while, a measurable deterioration of receivables on their balance sheet.
Q: Go on.
A: Owing to Dell's price and high valuation, they can't afford to miss earnings targets by even one cent. We also saw massive insider selling, starting late last fall. This has been a successful short.
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