I am a long term investor and have hold Dell more than 3 years now. It has rewarded me very
well: it is a 9 bagger. When I see people trading in and out of a stock, I always wonder how large
the gain they try to achieve each time. If it is 30%, how many trades do they need to add up to a 9 bagger?
Not to mention the capital gains tax they have to pay.
Dell is probably a little bit ahead of it self right now. But I am not going to sell. Their last quarterly
result is about $1 per sh. I think they have a good chance to double that in three years. Then
they will make $8 per sh(per year) and the stock will double accordingly to $150--$180. Trading might let you
avoid a temporary drop but you might miss the next big run up because nobody knows when it will
come.
I am holding to Dell because of its rare asset: CEO Michael Dell. No body knows the PC business
better than Michael Dell, except Chairman Bill Gates. The sucess of a high tech company relies on:
management, management, and management.
Yesterday Dell announced the news of hiring a Compaq VP for its Server product line. I think that is
a wonderful move. They are going to squeese the profit away from CPQ. Dell had a small server
business. By moving into it, they might be able to substantially increase their profit margin. Whereas
CPQ had huge profit from server, those profits had topped and the only way to go is down.
PC companies used to be valued at a discount from other high tech companies when measured
by PE. But I think PC business has come to a turning point that such a discount is unjustified. This
turning point is marked by the shake out of the last two years through major PC price reductions among
the competitors. Now the cards are dealt, and we have winners and losers. Clear winner is Dell, which
not only is gaining market share but at the same time saw its profit rising by 50%. Compaq survived but its
earning stagnated. There are many losers and blood is running: AST, DEC, APPLE, IBM and I doutb HP
is making money on PCs. Hence Dell is a winner and it will command a premium.
And I am also not concerned on Japanese enterance in the desktop. The PC business requires rapid
introduction of new models and I am not aware of any Japanese advantages on this. They are good
at mass production though. They might pose a threat on the notebooks.
Other things to like in Dell's business model is build to order. The PC is fresh out the factory with every
component built using the latest technologies. Whereas CPQ and the likes that sell through reseller have their
PC's several months old due to inventory stocks. And several months is a long time in this fast pacing
business.
Wayne Lian |
