Dell, Compaq To Lead PC Stocks
LoD:
Here is some good news if you want to call it that.I do like some of the points Kings makes which are highlighted,what do you think.
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Source:CMP Net
By Sergio G. Non,
Thu Sep 17 9:48 AM PDT
Investors should pay attention to individual PC companies, rather than worry about industrywide trends, a NationsBanc Montgomery Securities analyst said Wednesday.
"The real issues will remain company-specific issues, more than industry issues," analyst Kurt King said during a workshop at the annual NationsBanc Montgomery Securities Investment Conference in San Francisco.
Investors in PC companies, King said, should keep four things in mind: Good companies will thrive regardless of how the industry as a whole is doing, consolidation will only help strong companies grow even more, server sales will separate the winners from the losers, and the group's core portfolio stocks remain Dell and Compaq.
No matter how fast the overall PC market grows, companies like Dell (company profile) will succeed because it keeps taking market share from small and medium-sized vendors, King said. The stocks with the best returns to investors are those with consistently high operating margins. "The rankings are identical for the two variables," he said.
Market share among the top four vendors -- Compaq, Dell, IBM, and Hewlett-Packard -- currently account for 37 percent of the market, but that will increase to 40 percent by 2000, King said. Year-over-year, each of those top four will see unit shipments grow almost 40 percent or more in 1998, compared to just 10 percent for the industry as a whole, he added.
That trend of the big getting bigger is especially magnified in the fast-growing server market, King said, because the rising cost of R&D and customer support make the barriers to entry virtually impossible for newcomers to scale. And because servers handle extremely important tasks, corporate buyers are very picky about who they buy from -- and they often end up going with a well-known name that they're comfortable with, such as Compaq, HP, IBM, and Dell. "No other PC vendor has a prayer of even getting a 5 percent share in servers," King said.
Taking all that into account, Dell and Compaq (company profile) emerge as the top investment in the PC group, King said. For example, although Dell already carries an extremely high price-to-earnings valuation, the share price is actually just 75 percent of estimated earnings growth, compared to 344 percent for the S&P 500.
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