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Dell: Will It Be a Dell-icious Stock to Buy?

September 23, 2013 | About:
Muhammad Bazil

Muhammad Bazil

3 followers
Dell Inc. (DELL) is a manufacturer of desktop and laptop computers. Similar companies include Hewlett-Packard Company (HPQ) and Cisco Systems Inc. (CSCO). I must emphasize that these companies may sell other products but the product they have in common is computers.

Deep Insight

An interesting news article to start off with is a recent shareholder vote, cast by Dell Inc. shareholders, in favor of Michael Dell (the company's founder) to "buy out" their shares for a total of $25 billion and turn the company into a "Private Limited Company." This means any prospective investors should stay clear of a long-term view on this stock as it will only be around for a short period of time.

This affects Hewlett-Packard Company and Cisco Systems Inc as a privately owned Dell can make tougher decisions than before (as they won't have to consult shareholders) to turn the business around and offer contracts that may have been up for grabs by competition (like Hewlett-Packard).

This is turn could damage both Hewlett-Packard Company's and Cisco Systems Inc's share prices as they can't keep up with Dell Inc's financial prosperity. At this stage, investors should be wary of Dell Inc's competitors shares as they may not be able to perform as well as if Dell Inc had remained a public company. However, we will have to examine other news and the financials to see what affect they have.

The major reason why Dell Inc. is now being privatized is because it has been on the decline for the last decade and has finally reached a share price that private investment firms, like Silver Lake who is backing Michael Dell, can afford to take the company over at. As Microsoft's grip on the industry continues to drag companies like Dell Inc., Hewlett-Packard Company and Cisco Systems Inc. down, we'll see similar stories as these happening to other companies.

Hewlett-Packard Company is set to join up with Microsoft to create a new mobile phone, it will include Windows 8. This will be a chance for Hewlett-Packard Company to turn its recent decline into a climb and continue a move into the mobile phone industry.

Cisco Systems Inc. has announced that they are working with Deutsche Telekom to produce new software that will allow access to "premium" TV services on mobile devices. It's estimated that 40 or so TV channels will be available for a subscription fee of 4.95Euro a month.

Cisco Systems Inc. has also developed a new "chip" which works in cooperation with their processors to increase processing speeds. Sales of its ASR9000 series (which includes these new chips) have increased 69% this year from last. This shows that like Hewlett-Packard, they are developing new products. Both this, the mobile TV software and the new Windows 8 mobile phone will help both companies improve in the coming year or two.

Financial Analysis

Dell Inc.'s income for 2012 increased from $61.5 billion (2011) to $62.1 billion. Gross and net profits are unavailable (consult here for more details) and while cash and investments have increased from $15.1 billion to $18.2 billion, information about other assets and liabilities is unavailable.

Hewlett-Packard Company made $120 billion sales in 2012 (down 5.42% from the year before), $29 billion (or 24.335%) gross profit (down just under 26%) and a net loss of $12.65 billion (previously $7 billion). Total assets were down 16.02% while total liabilities were down 5.06%. For every $1 of asset they held, that had $0.79 of liabilities.

Cisco made $46 billion in sales (up 6.578% from the year before) in 2012, $28 billion (or 61.24%) gross profit (up 6.3%) and $8 billion (or 17.457%) Net Profit (up 23.898%). They held $91.8 billion in assets (up 5.355% from the year before) and total liabilities of $40.5 billion (up 1.56%). For every $1 of assets they own, they have $0.44 of liabilities.

Conclusion

For Dell Inc., I would advise all prospective investors to stay clear (rating it as a SELL) if they're after a long-term stock. You may be wanting to buy for short-term speculation but for the long term, it's a SELL.

If, however, you were interested in buying a stock like Dell Inc., I would advise looking at Hewlett-Packard a little furthe,r as the media show positive signs and the financials look reasonable. However, I would have to rate Hewlett-Packard as a HOLD based on its financials. Cisco Systems Inc. also looks to hold prospects for potential investors as it has positive news and good financials. Its share price is slightly higher than the other two but that's not a bad thing in terms of security.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 2.4/5 (9 votes)

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