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Bill Nygren on DELL

April 13, 2006 | About:

Dell Computer (DELL – $30)

When we started managing The Oakmark Fund we viewed Dell as one of those great businesses that was unlikely to ever get priced cheaply enough for us to own it. In March of 2000, Dell stock peaked at $60 – a robust 88 times trailing earnings. Dell’s business has performed well since then, with sales and EPS both more than doubling. Dell’s stock, however, hasn’t done so well, now selling for just half the price it did six years ago. The world’s largest manufacturer and distributor of PCs is now priced at less than 16 times expected 2007 earnings. At this price, Dell is selling at only a slight premium to the average company’s P/E multiple, and it actually sells at a discount after adjusting for its large cash balance. We think Dell’s brand name and low cost structure will provide an enduring competitive advantage that will allow the company to continue growing faster than most businesses, which will warrant the stock selling at a significant premium.

Rating: 2.0/5 (2 votes)

Comments

vooch
Vooch - 8 years ago
Yep. DELL looks good to me. I bought it 11 days ago - taking a -2% loss right now which is nothing.

- Vooch

jptsang
Jptsang - 8 years ago
still looks good to me. Took a 10% loss so far. Bu i believe Ngyren is way overrated as a portfolio manager
vooch
Vooch - 8 years ago
Now I'm down -9.8% with DELL after Citigroup downgraded it to sell.

DELL comprises 1.7% of my value portfolio.

I'm gonna keep my eye on this one and look for adding onto it, but I don't want to do it prematurely.

What do you think? Buy now or Wait?

dldavy
Dldavy premium member - 8 years ago
The logic of the stock market, more often than not, moves in slow motion. The fact that a stock goes down, has been going down, "is trending lower," etc, in the long run means nothing at all. As Ben Graham said, "In the short run the stock market is a voting machine. In the long run it's a weighing machine." I have thus far lost quite a bit of money on Dell and I am not concerned; I just bought more, and intend to buy more yet if it should go significantly lower. If you bought it in the first place because it was too cheap, and it becomes even cheaper, then..................


biscosc
Biscosc - 8 years ago
I own DELL as well and I am not worried about the recent price decline. I do worry that it might have an extended P/E contraction as has recently happened to two of my other holdings - WMT and KO. These mega-cap businesses are totally out of favor and stocks that have historically been given low 20 P/E ratios are now selling for mid-teen ratios with no P/E expansion in sight. Bottom line is that this could be dead money for a while until sentiment improves.
vooch
Vooch - 8 years ago
> These mega-cap businesses are totally out of favor and stocks that have historically

> been given low 20 P/E ratios are now selling for mid-teen ratios with no P/E expansion

> in sight. Bottom line is that this could be dead money for a while until sentiment

> improves.

Very true. The good news is several CNBC guests are starting to talk about how small caps outperformed large caps for at least six years. I think the reverse will start occurring within two years.

I haven't added onto my original DELL position yet. I don't see any near-term catalyst to launch the price into the sky, so I'm gonna sit/wait until it drops a couple more percent. I'm down -13.38%.... maybe... if I'm down -18%, I'll pick up some more.

ValueGuy2
ValueGuy2 - 8 years ago
I have mixed filling about DELL. At the current price, it looks compelling, but have concerns about how generous/lax they are about stock options - i.e. giving away parts of the company to employees at the expenses of current shareholders. Although, they do a great job, I sometimes wonder if it's too generous.

Can someone answer the question about DELL being the lowest cost producers of PCs? In America, yes. But, what about in the world? DELL doesn't have the distribution advantage or brand recognition in Asia or Europe. I would suppose in China most computers would be nameless brands or Legend (aka Lenova)? Could Legend (Lenova be the low cost provider in asian?
random_walker
Random_walker - 8 years ago
About 5 years ago when I was systems manager at a IT firm running offshore development centres in India I know from experience that Dell was the lowest cost provider of PCs in India then.

When buying large numbers of PCs I would get quotes from Dell, HP, Compaq & IBM... play them off against each other. Dell would then send in their regional manager and sitting across the desk from me he would call his country manager and provide us with the lowest price.
random_walker
Random_walker - 8 years ago
Just noticed that Michael Dell bought 3 million shares on the 24th at $ 23.99 or a total of $ 70 million
dldavy
Dldavy premium member - 8 years ago
Not "wanting to do it prematurely" is what almost all the trading that is done every day is based on (that, and "I think the market is telling me that now is the time to buy," and all associated guesses.). When you orient your thinking only to "the market," if the market as "market" will go up or down tomorrow, next week, next month, etc. then you are doing what almost all the gigantic herd of traders is doing every day: Everyone is trying to guess what everyone else will do. This is an infinite loop. There is no ground, or basis, for such a system. The whole logic of value investing is intrinsic value/margin of safety: that is, what is the BUSINESS WORTH IN THE REAL WORLD, how much money will it make over the life of the business?, etc.---and compare your answer to the stock price. Is "now" the time to buy dell? No one knows. But you can know that the significant probability is that dell is signficantly undervalued, buy on that basis, and not give a hoot what the market does tomorrow, next week, or whatever. In the long run (sometimes in the short and middle run too), price and value will roughly converge. And you will make money.

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