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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: freeus who wrote (20091)	10/31/1997 12:53:00 AM
From: Jonathan Rothschild	Read Replies (3) \| Respond to of 176387

Dear Freeus, Dell's PE has been held up above 40 by momentum investors who don't care about value, only direction. Now that it's down, Vinik and momentum investors like him are bailing (see Business Week article of two weeks ago). In summary, Vinik busts the shorts, bails and stocks drop precipitously. These are not the type of stocks you would want to buy on margin at their highs. I've seen this before. These stocks can drop by two thirds within a month under these market conditions. Dell is no exception. It was the premier momentum stock of the year, but has no competitive advantage over its peers in the industry. The direct channel was a great story for the Harvard Business Review, but has been copied by everyone. This is fundamentally a low-margin business and these stocks should not sell for more than 1 times sales. Dell has at least another 40 points to drop before we see any real stabilization. The split was just hype. Novellus and Applied Materials are suffering a similar fate after recently splitting. Good trading and good luck.

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