Is The Dell Move A Trap?

| About: Dell Inc. (DELL)
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Dell (DELL) gapped up this morning after a positive report from Goldman Sachs, which changed it from a "sell" to a "buy."

The question for investors now is: Is this move real or a trap?

Its latest earnings release, from the quarter ended in October, was profiled by our friends at CapitalCube and would seem to indicate trap. They see the company as being in "harvesting" mode, maximizing returns on a dwindling earnings stream. The company's close ties to Microsoft (NASDAQ:MSFT), which as I've noted is facing its own fiscal cliff, would seem to count against it.

But there are two reasons for optimism:

  1. The company's convertible Ultrabook, which flips from being a PC to a tablet, is getting strong reviews. The price of $1,200 may be high, but the guess here is that Dell is making a sizable profit at that price. Few Windows OEMs can say the same.

  2. The company's reported plans to buy part of Sharp, alongside Intel (NASDAQ:INTC) and possibly Qualcomm (NASDAQ:QCOM), shows some promising, out-of-the-box thinking.

The reason the Sharp deal is promising is because of Sharp's close ties to Apple (NASDAQ:AAPL), which badly needs the company to maintain itself as an alternate supplier of screens to Samsung. The Apple-Samsung war keeps escalating, and Dell's willingness to invest in Sharp could bring with it Apple supply contracts. Such a deal would also give Dell access to cutting-edge screen technology, which it could then use to upgrade its own line. Having Intel as a partner could also prove very useful, both in future products and in moving merchandise. It could lead to private labeling an Intel-branded computer or even a merger.

My problem is that most of this is speculative. Sure, there is hope in Austin, but enough to risk money on? It would be cool if America bailed out Japanese technology and used it against Chinese competitors, but is even patriotism a good enough reason to buy Dell, which has fallen in value by one-third in the last year?

Not yet. But maybe soon.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.