In his most recent investor letter, Einhorn wrote:
“Our current strategy is to own cheap stocks of good businesses, largely in the United States. We are more net long equities than we have been in some time, as we believe that many stocks have reached a point where they are simply cheap enough to own even if some trouble awaits us.”
Clearly, Einhorn feels that DELL is a value stock that can weather any recessionary fears that Einhorn expects in Europe and the U.S.
Investors fell out of favor with DELL because growth has stagnated. Gone are the days of double digit revenue gains. DELL is about as sexy as microwaves and dishwashers. In fact, the company only expects 1% revenue growth next year.
However, the share price of DELL reflects the lack of growth opportunities. The company only trades for 7X earnings.
DELL generates about $4.5/yr in free cash flow. Since there are few opportunities to re-invest the capital into the business, DELL has committed to an aggressive share buy back program.
Over the next five years, DELL plans to use 50% of it's projected cash stockpile of $14B on buybacks in the coming years. Over the last year, DELL bought back about 120M sharest trend continues, DELL could achieve 7-9% EPS growth despite the fact that revenues and income are flat.
Over the last few weeks investors have awoken to the allure of investing in other value stocks in the old tech world. Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) have been standout performers in the Dow over the last six weeks.
Perhaps 2012, will be the year that DELL is recognized as a value stock in a similar fashion.