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Technology Stocks : Dell Technologies Inc.

DELL 122.55

+4.4%

Nov 21 9:30 AM EST

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To: freeus who wrote (20091)	10/31/1997 2:17:00 AM
From: Chuzzlewit	of 176387

Freeus <<But you dont think PEG and P/E work for growth companies?>> No, I don't because they fail to take into account some very important variables. Basically, PEG is a simplified discounted cash flow model but it is missing one of the major components -- the discount rate! Obviously, all other things being equal, when long term interest rates are low the value of future cash flows is higher than when interest rates are high. The second problem is that it fails to take into account the relative riskiness (the standard deviation of the expected value) of those cash flows. P/E is backward looking and is meaningless unless placed in some context such as the expected growth of earnings, liquidity and financial resources of the company, competitive pressures etc. I think these measures are useful only to exclude companies that are grossly over-priced. When you invest in a company like Dell you are assuming a greater than average market risk because of it's high beta. Buying on margin to leverage your returns substantially increases your risk. I am a believer in risk minimization, so I don't buy on margin and I tend to avoid investing in companies that are highly leveraged (i.e., have high debt/equity ratios). That is also the reason that I believe in a well-diversified portfolio. I think that Dell is a fundamentally sound company with exceptionally bright prospects for the future. It seems to me that it is currently under attack, much like the Asian currencies have been. The difference is that the underlying business for Dell is sound. The next quarterly report and managements comments will illuminate many areas that are currently the subjects of wild speculation. So I intend to hold DELL for the forseeable future. Regards, Paul

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