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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Andreas who wrote (21105)	3/10/1998 1:47:00 AM
From: Bura	Respond to of 97611

As recently as two months ago, Lucy had CPQ at strong buy and EPS for 1998 at 2.00+. Now with the stock off 40%, it's neutral. The buy side is true herd... Everyone is downgrading (except DLJ) when six months ago, people were tripping over each other to buy CPQ. I really doubt that the highs we saw in CPQ a few months ago are going to be an all-time high. It may take many months even a year or so, but buying now is almost an easy 60-70% (to simply get back to old highs not to mention subsequent new highs). Think about it, the recent blowup in CPQ earnings is going to impact everyone (except maybe Dell). Even optimistically for Dell, it is still half the size of Compaq and won't overtake CPQ for a couple of years if ever. However, the market has valued Dell at a higher market cap than Compaq. Who besides Dell will take share from Cpq? IBM? These guys can't get their act together in PCs..HP? They're doing a decent job but still nowhere near as good as CPQ in margins and market share. Who else is left? Packard Bell, Gateway, Micron, NEC...All the smaller players will bear the brunt of this new price war, and the bug guys will simply accelerate their gains. Compaq will not be the last to announce bad PC news. If Intel announces a 10% drop in their business, Compaq can't be the only one with a slowdown. There has to be others and it's probably not Dell. This is eerily similar to March 1996, the last time Compaq preannounced (and dropped 40%). (Look at the question at the start of this thread). What happened to Compaq since then. Even with the recent collapse, the stock has more than tripled! Six months is a long time in the PC world. By late 98 or early 99, Win 98 and Win Nt 5 upgrades will be well into swing, PC sales will be higher than today and Compaq's market share will be greater than today (even after this bad news, Pfeiffer has said this. Why should I doubt this guy after his amazing performance to date?) By then, the merger uncertainty will be less, and the upgrades will start. Estimates will begin to be raised once again. Compaq will make more in 1999 than in 1997 (which is a leap of faith according to these sorry analysts. After all, if Compaq can't make in PCs, who will?) Don't forget the huge upside potential from the Digital merger, too. I can easily see earnings of $3.00 by 2000 making the current price a steal. People seem to think that just because sales growth will be flat that this will be normal for a while. The sales growth is flat because Compaq has decided to "show" it this way. They are stopping shipments to the channel for a while to clear excess inventory (due to a general slowdown and to get into ODM mode). They are taking the "big bath" approach as they are probably throwing a lot of reserves in there as well. Once the merger is completed, they will start having decent numbers again. By 1999, Win NT 5.0, Merced, stronger Asia,ODM, Digital will lead to excellent numbers. I can't wait to buy LEAPs and more shares at these bargain prices.