2 Widely Held Losers to Ditch and 2 to Buy

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 |  Includes: CSCO, DELL, PEP, T
by: Larry Meyers

Seriously, why are you holding Dell Computer (NASDAQ:DELL)? The 90s are over. Dell’s extraordinary build-to-order business model isn’t in the news anymore. All the other services it offers are all well and good, but this is not a growing company. You’re sitting on a business with a five-year annualized growth rate that is projected to be 6%. It doesn’t pay a dividend. It’s just a stagnant, economically-dependent company whose exciting days are long gone. Look, I’m all for stalwarts, especially one with $9 billion of net cash on its balance sheet. But until the company either offers a sizable dividend or shakes up its entire business strategy, holding Dell has no merit for me.

Along those same lines, I have to say that holding Cisco Systems (NASDAQ:CSCO) doesn’t make much sense. I know – billions of cash on hand, in profits and cash flow. Yet growth is stagnant FOR the next couple of years. Insiders cashed out ages ago ... the company has only 0.07% insider holdings. In some sense, Cisco could be considered a long-range value play. It has 10% projected five year growth, even though this year and next will stink. And backing out its net cash position, the stock is effectively trading at $10 a share. That’s a p/e of just 6. But the stock has gone nowhere for the past 10 years and it pays a tiny 1.4% dividend. It just doesn’t have a place in even the most conservative of portfolios.

DirecTV Group (DTV), on the other hand, has a long way to go. With its superior service, a veteran marketing guy as CEO, terrific technology, and a booming Latin American business, this company should be in everyone’s portfolio. The company continues to grow market share domestically, it has a tiny 1.5% churn rate, its average monthly revenue per customer continues to grow, and it has billions on hand and makes billions in profit. Also, DirecTV has a 22% projected five year growth rate, growing 30% annually this year and next, and only trading at 16x this year’s estimates. It’s a buy.

Pepsico, Inc. (NYSE:PEP) may have lost its top marketing guy to DirecTV, but that hasn’t stopped the soda company from infiltrating the furthest reaches of the world with its product. I really thought Pepsi and its rivals had been tapped out years ago, but never underestimate the power of sugar water. Somehow, Pepsi is still set to tack on 14% revenue growth this year and 9% earnings growth. It also has a five-year projected growth rate. Toss in a 3% dividend yield and you can see why I would choose this over the two aforementioned loser tech stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.