Dell Pointing the Finger?

Dell sucks. I listened to Dell and here’s the problem with Dell, they literally said this immediately after this horrible number came out. They said, our numbers are down but you know? Hewlett-Packard was bad too. Any time a company says, yeah we stink but they stink too, you want to steer away. I’ve been directing people absolutely out of Dell. If you get higher Dell numbers, I say unequivocally to sell the Dell you already own and don’t buy any new Dell.”

DELLThese were the harsh words of one of the traders on CNBC’s Fast Money. On that show, as with some other CNBC broadcasts, the time-frame behind some of their logic is very short. And, perhaps we can agree with him on the fact that Dell (DELL) may be in for a few more rough quarters in terms of PC sales, which account for 60% of Dell’s revenue. However, over the long term it seems clear to us that Dell is about as Undervalued as any in the market. Just as we were anticipating earnings came in at the low end of analyst expectations, and full year 2008 earnings tallied $1.24 per share. We speculated that the stock would be compelling even if earnings came in at $1.23 the lowest of analyst opinions earlier this week in Dell: Undeniable Value. So as of the close, Dell is trading at 6.6 times earnings, which is cheap even in this market. Not to mention, the fact that Dell has substantial cash on its balance sheet of nearly $4 per share.

There is no doubt that Dell is struggling right now, but it is companies that are struggling and out of favor with the market that can present the most opportunity for a savvy investor. Dell is continuing to cut costs and reduce headcount, which is down more than 7% from last year. Additionally, the company plans to find an additional $1 billion in cost savings this coming year. These cost savings enabled the company to generate $729 in cash flow in the last quarter and $2 billion in the year. In this environment “cash is king” which is part of the reason that this company will be one of the healthy survivors when things do rebound, and it just demonstrates the different time horizons between traders (Fast Money) and investors. We could not have said it better than the company’s founder Michael Dell:

Within our business, we’re being very disciplined in managing costs, generating profitability and cash flow, and investing in ways that separate Dell from others today and when the economy inevitably improves.”

Dell Pointing the Finger?

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