Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Geoff Nunn who wrote (47403)	6/12/1998 7:20:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

Geoff, think about it in these terms: what is the best use of the cash? Would you rather invest the cash in a stock growing at > 50% per annum or a bank account at 5%. Remember, we're talking about cash flow spun off from a company with a very high ROIC. Think of an eps line based on the number of shares o/s. If the company were to issue more shares and invest the cash in a savings account at 5% the price of the stock would fall because of the dilution. At the margin, the return would be 5%. By repurchasing shares you get the opposite effect. Another way of looking at it is increasing leverage with the marginal cost of capital being the opportunity cost. Typically, this gambit works when the management views the stock as undervalued and ROIC is much higher than the opportunity cost. TTFN, CTC

To: Geoff Nunn who wrote (47403)	6/12/1998 9:34:00 PM
From: jbn3	Read Replies (1) \| Respond to of 176387

Please excuse me, Cat, for adding to your response. Remember Geoff, when DELL buys back shares (the last quarters' buy backs were at ~$32.00 per share) it does this with call options. In DELL's case, management can see the company's growth further out than we can. So, they sell long-term puts and use the money to buy long-term calls, making the puts pay for some of the premium in the calls. Management knows that 6-24 months down the road they will have increased earnings with a high probability of higher stock price. Bottom line: if a company were simply paying market price to buy back shares, then you are correct in that we need to look at opportunity cost. In this case, when management is able to get a 50-75% market discount, it becomes more difficult to find better opportunities. That is why, whenever one buys long-term DELL puts, he is betting against Michael and Mike's team... similar to blindfolding oneself to play against Michael Jordan. FYI: page 26 of the 1997 annual report lists 'put options' with a value of $279MM under Liabilities and Stockholders' Equity. And the beauty of the buy-back, as Chuzzlewit pointed out, is that the tax burden of the stock dividend is passed on to the recipient. I haven't noted a great weeping and wailing and gnashing of teeth on the part of the recipients. <g> Regards, 3

To: Geoff Nunn who wrote (47403)	6/12/1998 9:36:00 PM
From: Mike Allen	Read Replies (2) \| Respond to of 176387

To all: January 2000 Leaps I purchased some January 2000 option calls, strike price of $70.00 today for $29.00. In other words, I'll be in the money at $99.50 and after that it's just found money. I don't know why anyone would write these but they're out there. 18 months before expiration and Y2K ahead to drive PC sales. This time frame allows for the guaranteed stock split, at least one, which would double the contracts and cut strike price in half. I feel this is the best deal going for Dell bulls like myself. Comments? P.S. They're probably a little higher now but still an awesome value. Good luck all.