Dell (DELL) shares were trading around $18 just a few weeks ago, but the stock has pulled back about 12% and now offers investors a much better entry point. The pullback seems to be more related to the recent volatility in the markets and less company-specific in nature. Dell appears to be a low-risk way to invest in technology, and investors should consider the following points as reasons why the stock could resume the general uptrend it has been in since December (when it was trading around $15 per share):
- Dell is a major PC manufacturer, and recent data from Gartner Inc. shows that global PC sales are coming in stronger than expected. This research firm states that sales grew about 1.9% in the first quarter, which is very bullish since PC sales were expected to drop due to global economic weakness and the popularity of tablets like the iPad. This increase could translate into solid financial results when the company reports the next quarter.
- Dell shares appear undervalued when considering that the stock trades at just about 8 times earnings, while the average stock in the S&P 500 trades at about 13 times earnings. Many tech stocks trade at even higher levels, and Dell shares are a rare value play for the sector.
- Dell has growth potential from the launch of Windows 8, which is expected to be released sometime in June 2012. Analysts with Forrester Research and other experts have been giving Windows 8 positive reviews, which means there is a good chance it could create an upgrade cycle for the PC industry. Many corporations are likely to order new computers when Windows 8 is released and that will benefit Dell. Both businesses and consumers who have postponed buying a PC in recent months because of the anticipated launch of Windows 8 are likely to unleash pent-up buying demand for PCs. This could boost profits for Dell in the coming quarters.
- Microsoft (MSFT) recently reported better-than-expected earnings of 60 cents per share, which beat analyst expectations of about 57 cents. Microsoft shares jumped in after-hours trading on the news, and this could bode well for Dell also. A number of other tech companies have been reporting solid earnings, which means Dell could be poised to do the same.
All these factors are likely to continue pushing Dell shares higher through 2012. Buying Dell shares on dips like the one we are seeing now is likely to reward investors who are willing to hold the stock as the Windows 8 release plays out.
Here are some key points for Dell:
- Current share price: $16.16
- 52-week range: $13.29 to $18.36
- Earnings estimates for 2012: $2.13 per share
- Earnings estimates for 2013: $2.19 per share
- Annual dividend: None
Here are some key points for Microsoft:
- Current share price: $31.01
- 52-week range: $23.65 to $32.95
- Earnings estimates for 2012: $2.69 per share
- Earnings estimates for 2013: $3.01 per share
- Annual dividend: 80 cents per share, which yields 2.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.