Return of The Hats -- The, Cisco, Dell and Microsoft (TSCM, CSCO, DELL, MSFT)

by: The Stalwart

Just when you thought Cramer & Co. over at (ticker: TSCM) couldn't go any farther to make their site less relevant, they did, writes The Stalwart. This weekend they introduced former football player, and professional wrestler John Bradshaw Layfield as a columnist. Mr. Layfield's cowboy hat hearkens back to 1999 when business-folks decided to make total asses out of themselves by appearing on TV in silly hats -- I'm specifically talking about the Motley Fool gang in their jester hats, and the CEO of Redhat (NASD: RHAT) who, predictably, appeared on CNBC wearing a red hat. Aah, the good old days.

It's probably wise to tread carefully when taking on someone of John Bradshaw Layfield's frame. We wouldn't want to get injured, so we'll refrain from the personal and focus simply on the content of his premiere column entitled "JBL: The Ultimate Equity Tag-Team" (heh.)

Here's a little sample:

Before today's "featured performers," a quick recap about how I got here: With the money I earned playing football, I invested heavily in having a good time, and when my pro-football career ended, I had a whopping $27 in my pocket. Not quite enough to retire on.

At that moment, I decided to never be poor again and started reading every book I could get my hands on about the market and watching financial news nonstop. When I finally had some money to invest, I had no doubt I could do it quite well, and I have. I've had a lot of success in the past seven years through a simple, basic personal finance strategy: Keep cash flow positive and stay as far away from debt as possible.

I invest in companies with the same philosophy. My two stock picks today, Dell and Cisco , highlight my strategy. Both are cash cows with little or no debt; both are leaders in their field, my perfect scenario. I am willing to take risks in my job with the WWE, but not with my money.

Yep, he bought those companies then, and is still recommending them today. Here's what he has to say about Cisco (NASD: CSCO):

Another thing I like about Cisco is what it does with its cash. Cisco acquires companies and spends money on research and development. I couldn't believe that Microsoft couldn't find something better to do with all that cash -- i.e. a bigger stock buyback, massive R&D spending -- than make one ridiculously large dividend payment.

To me, Microsoft not investing in its own company is an indication it does not believe it can grow organically. By comparison, Cisco is using its cash to get into new markets like IP telephony, wireless networking, and storage. Cisco is targeting a total of 12 new markets it believes could each generate $1 billion in revenue over the next several years.

Excuse me? I seemed to have missed something. Cisco is the most acquisitive company of all time, having bought hundreds (yes, hundreds) of smaller networking players, and yet it's Microsoft that doesn't believe in can grow organically?! Microsoft is one of the most shareholder-responsible companies ever, rarely making acquisitions while others around them bid desperately to get in on the next hot technology. Where has Mr. Layfield been? What company is he talking about?

Now onto Dell (NASD: DELL), who, he says, would be nicknamed "The Crusher" if the company were a pro-wrestler (whatever...):

Dell has more than $12 billion in cash and investments, with a tiny amount of debt. It has free cash flow of almost $4 billion. Dell has created a great brand loyalty with the consumer (along with the stock, I own two Dell computers). Yet around 85% of Dell's sales are from government and corporate accounts that have higher margins.

Dell has forward earnings projected at $1.88 per share. If Dell can live up to its promise of 19% earnings growth, then you will have a tech leader with a P/E-to-growth ratio under 1; that is a gift. Even if they grow at a more reasonable rate of around 15%, it is still a buy.

If Mr. Layfield were to dig a little further into Dell's accounting, he'd see that they're one of the worst when it comes to protecting shareholder value with an options program that funnels earnings to employees. We published a more extensive look at this situation a little while back.

With Mr. L. we now have finished the Bubble '99 trifecta of Henrgy Blodget, Mary Meeker, and pundits in silly hats all itching to dispense un-asked-for advice. God help us.

Full disclosure: At the time of writing the editor of the Internet Stock Blog (not the author of this article) is short TSCM.


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