Thread,
From The Option Investor Newsletter:
READ AT YOUR RISK
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DELL Computer $77.81 (+4.62)(P3W+6.00)
Dell is the largest direct sales PC manufacturer in the world,
listed at 125th in the Fortune-500 and 343rd in the Global-500 of
top companies, with $16.8 billion in sales over the last 4
quarters. Dell has consistently outperformed any other major stock
for price performance. Dell is up +1200% in the last five years
and has split their stock five times in the last three years, two
times in 1998 alone. Dell is a low price, high margin producer
because it has only 6 days of inventory and doesn't have to pay
its suppliers (some who manufacture in Asia) until 8 days later.
Since Dell gets paid before it manufactures a box, they have a
huge cash float-can you say "83% return on equity?"
Veteran readers may recall our obituary to DELL written in
October. For those who missed it, "It is not often we have to
write an obituary for a great play but for those of us still in
denial, Dell may be dead. We still think Dell is a great company.
Great earnings, great sales, growing at +50%, opening new markets.
We think the problems are many." We assumed that the shares in
float, now totaling about 980 million (that's "m", not "b"), had
split so many times, so as to dilute the stocks ability to have
big daily run-ups or even bigger earnings per share surprises. We
reasoned it now takes an additional $10 million of earnings to
create $.01 per share surprise. Dell used to surprise us by $.05
routinely-pretty hard now to hide $50 million quarterly from Wall
Street, especially for an earnings surprise. In essence, Dell's
ratio of daily turnover compared to shares in float couldn't move
the price as much. To add insult to injury, Dell really flattened
out after its last split run to $69, where it fell back to
languish in the $60-$66 range. In early November, DELL spiked up
to $72 in anticipation of another earnings surprise but couldn't
hold it after the announcement. So we dropped it despite its
sound fundamentals.
Guess what? It's baaa-aaack! $69 had become the magic resistance
number. Dell broke through this resistance just before Christmas,
but we had our doubts that DELL could hold it. Still DELL
predictably drifted over the Holidays during what was suppose to
be a Santa Claus rally. We weren't buyin' it just yet. Then the
good news, we got a technical confirmation last week when DELL
broke above its previous all-time high of $71.94 and not only
held, but kept going higher. There's more
Last week, Dell announced that it will begin shipping Precision
Workstations with the new 450 MHz Xeon chip, Celeron-based
desktops and Genesis chip based flat screened monitors(reasonably
priced too!), all while cutting the prices of its Precision
Workstations by 7.7%. In late December, they announced a multi-
year marketing deal with AOL to place AOL on all Dell desktops.
In its server business, Dell managed a 62% year over year
sequential revenue growth. With over 200 product and service
awards earned during 1998, Dell has not forgotten its
manufacturing and marketing prowess. Though Dell hasn't been in
the news much lately, we think their price would be higher if they
had been.
From their 10Q filed with the SEC December 14th, we glean the
following: During the third quarter and first nine months of
fiscal 1999, enterprise unit sales increased 112% and 165%,
respectively, compared to the third quarter and first nine months
of fiscal 1998, and increased sequentially 13% over the second
quarter of fiscal 1999. Notebook unit sales increased 141% and
123% in the third quarter and first nine months of fiscal 1999,
compared to the same period of the prior fiscal year, and
increased sequentially 16% over the second quarter of fiscal 1999.
Net revenue increased in all geographic regions in the third
quarter and the first nine months of fiscal 1999 as compared to
the same periods of fiscal 1998. Net revenue for the third quarter
of fiscal 1999 compared to the third quarter of fiscal 1998
increased 46% in the Americas, 68% in Europe and 49% in Asia-
Pacific and Japan. Net revenue for the first nine months of fiscal
1999 compared to the first nine months of fiscal 1998 increased
48% in the Americas,67% in Europe and 39% in Asia-Pacific and
Japan.
This stuff used to make front page news. There's barely a whisper
lately.
All told (technicals, business model, recent quiet, earnings
coming) we think Dell will get noticed again prior to earnings
scheduled February 17th and give us that run-up one more time.
Though volume has been a little weak, look for it to pick up steam
as Dell approaches earnings. Now's the time to scale into a position.
(on a trading note.. First Call has earnings scheduled for Feb. 25th.
We will keep you posted when we discover the truth.)
BUY CALL FEB-75 DLQ-BO OI=18325 at $7.63 SL=5.75, ITM
BUY CALL FEB-80*DLQ-BP OI=13051 at $5.00 SL=3.25
BUY CALL FEB-85 DLQ-BO OI=14352 at $3.13 SL=1.50
BUY CALL MAY-85 DLQ-EQ OI= 7578 at $8.38 SL=6.50
Picked on Jan. 6th at $75.25 PE = 73
Change since picked +$ 2.56 52 week low =$19.87
Analysts Ratings 12-8-10-0-0 52 week high=$80.13
Last earnings 10/98 est= .27 actual=.28 surprise +3.7%
Next earnings 02-17 est= .31 versus=.20
Chart = quote.yahoo.com
Ibexx |
