DELL - Dell Inc.

[DCG]

So it's selling for slightly more than it's cash right now (not factoring in $8.5B in debt). I think the company is pretty awful, and their capital allocation has been pretty horrendous, but the enterprise business has to be worth something, no?

[Palantir]

I wish I'd shorted this bad boy. To be fair I still can...

[plato1976]

I keep hearing that DELL 's cash is responsible for x% of its market cap, so on so on

But how can we discount its debt ? In fact, if we back out all the debt, this corp has negative tangible equity, no ?

When we say RIMM has 2B cash, MRVL has 2B cash, these are real NET cash ...

DELL 's balance sheet surely looks fine - but I don't want to assign separate value to its cash in the valuation.

 

So it's selling for slightly more than it's cash right now (not factoring in $8.5B in debt). I think the company is pretty awful, and their capital allocation has been pretty horrendous, but the enterprise business has to be worth something, no?

[stahleyp]

Remember that Shuckenbrock video I posted where he seemed to put some pretty heavy positive spin on everything?

 

I notice he sold more than 2/3 of his stock earlier this year around $17/$18 -- and so did some other execs.  Some pretty heavy insider selling. 

 

I think the video however came out after the selling.

 

It always looks suspicious when there is heavy insider selling, videos about how great things are going, and then in the same year some pretty nasty turn of events in the business.

 

Except last year Michael Dell bought a bunch.

 

Eric, didn't you buy some Dell a while ago?

[ERICOPOLY]

Remember that Shuckenbrock video I posted where he seemed to put some pretty heavy positive spin on everything?

 

I notice he sold more than 2/3 of his stock earlier this year around $17/$18 -- and so did some other execs.  Some pretty heavy insider selling. 

 

I think the video however came out after the selling.

 

It always looks suspicious when there is heavy insider selling, videos about how great things are going, and then in the same year some pretty nasty turn of events in the business.

 

Except last year Michael Dell bought a bunch.

 

Eric, didn't you buy some Dell a while ago?

 

Yes.  I'm not trying to be a "pile on" with the negativity, I just immediately thought of that Shuckenbrock character who I distrust and if you watch the video produced just a few months ago he talked in a tone that suggested how everything was doing so great -- I only distrust him because he looks like a slimy salesman in that video, otherwise no axe to grind with him.  It so happens that he and a few other execs sold a massive % of their holdings back in Feb/March.  That could be a pure coincidence of course, like maybe after years of the stock being low they all talked at lunch about monetizing a bit due to concerns about perhaps another large market drop (like what Prem worries about).

 

I also sold everything to buy BAC after they stated they're at 9% B3 already and provided more clarity on their expense reduction progess.

 

 

[Guest rimm_never_sleeps]

I keep hearing that DELL 's cash is responsible for x% of its market cap, so on so on

But how can we discount its debt ? In fact, if we back out all the debt, this corp has negative tangible equity, no ?

When we say RIMM has 2B cash, MRVL has 2B cash, these are real NET cash ...

DELL 's balance sheet surely looks fine - but I don't want to assign separate value to its cash in the valuation.

 

So it's selling for slightly more than it's cash right now (not factoring in $8.5B in debt). I think the company is pretty awful, and their capital allocation has been pretty horrendous, but the enterprise business has to be worth something, no?

 

you net the cash and debt. most people don't do that but it's customary and logical. their net cash position is approx $5b. so it looks like net cash is about 1/3 of the market cap. this is how p/e and strategic buyers look at it.

[ERICOPOLY]

I am also suspicious that my brain is a bit affected by selling before a drop -- it's probably subconsciously patting me on the back and offering an explanation to confirm my decision. So it's subconsciouly looking for reasons why I made the "correct move", even though this is purely random possibly.

 

Psychologists probably have a term for that.  Layman's term is "ass", but maybe if you can memorize a more scientific name you get awarded a PhD.

 

[stahleyp]

are you 100% BAC now, gangsta?  8)

[ERICOPOLY]

are you 100% BAC now, gangsta?  8)

 

Indeed, I am.

 

I know, I know.  I had that talk with Fidelity yesterday -- they reminded me of how they offer some premium services to me and could give me some help assessing the risk of my portfolio.  To this I said, "I'm not going to carry an automatic weapon into a police station and ask if it's allowed".

[Viking]

Looking forward, yes, DELL is facing some near term head winds. They likely have at least another 6 months of pain; should the US enter recession it will get worse. I agree that management is becoming much too promotional... this does bear monitoring.

 

Sentiment is so bad for PC stocks what respectable portfolio manager wants to have DELL or HPQ in their year end portfolio? Add in tax loss selling and we get lots of supply. DELL confirmed on the conference call they did no buybacks in Q3 and likely will do none in Q4 as they have already returned about targeted 30% of free cash flow to investors this year. Massive supply + no demand = stock price falling off a cliff.

 

At under $9.00/share I like the risk reward trade off. The company is still calling for earnings of $1.70 this year. I have confidence DELL can continue to generate decent free cash flow (to justify a $9.00 stock price). Share buybacks will happen next year, and my guess is they will be very aggressive once they get started (this alone should give the stock a nice pop). Should the macro environment stabilize or improve I expect DELL to do well.

 

I remember the US banks a year ago. Europe was going to put them under. Sentiment got extreme and we were all provided a wonderful buying opportunity. My view is PC stocks are equally hated right now and therefore likely a great time to buy...

[Palantir]

 

I remember the US banks a year ago. Europe was going to put them under. Sentiment got extreme and we were all provided a wonderful buying opportunity. My view is PC stocks are equally hated right now and therefore likely a great time to buy...

 

Why a "great" time to buy? I can't understand why something would be great to buy if it is hated. I mean it seems to be hated for very good reasons...not saying that there is no rationale for investing in Dell, but you seem to be implying that the main driver for an investment thesis is that it is out of favor.

[BargainValueHunter]

 

I remember the US banks a year ago. Europe was going to put them under. Sentiment got extreme and we were all provided a wonderful buying opportunity. My view is PC stocks are equally hated right now and therefore likely a great time to buy...

 

Why a "great" time to buy? I can't understand why something would be great to buy if it is hated. I mean it seems to be hated for very good reasons...not saying that there is no rationale for investing in Dell, but you seem to be implying that the main driver for an investment thesis is that it is out of favor.

 

If a company is in no danger of filing for bankruptcy or diluting shareholders and is a leading provider of products and/or services in an essential industry and the name has become a joke in the media and parts of the business are LITERALLY being given away AND the business is profitable then...

 

...IMHO the choice to buy or not is quite easy. :)

[Palantir]

In a shrinking, commoditized industry, with poor margins, zero brand value, and dim future prospects?

[stahleyp]

In a shrinking, commoditized industry, with poor margins, zero brand value, and dim future prospects?

 

Have you read any of the rationale from longleaf?

[bmichaud]

Didnt Eric point out not long ago that Longleaf was pounding tha table at $30 in 2006 or 2007?

[alwaysinvert]

Bought more today but I have to say that dividend is getting more irritating by the minute.

[ItsAValueTrap]

It seems to me that Michael Dell realizes that the commodity PC business is going to get really tough and can't do anything about it.  He has trying to move Dell into other areas but Dell has been overpaying for other companies and execution has been mediocre.

 

Michael Dell bought stock when it was higher than the current price.  Now that it is low, the company isn't buying back shares but instead issuing a dividend?!  His actions are saying that he thinks the company will enter a period of mediocre economics.  He is in a bad business and doesn't know how to get out of it.

[DukeCrow]

Didnt Eric point out not long ago that Longleaf was pounding tha table at $30 in 2006 or 2007?

I think the point is that the value isn't in the commoditized, poor prospect business, as Longleaf pointed out. But, yes, Longleaf has been completely wrong about Dell for many years -- and they've changed the thesis of their investment over the years, too. I wouldn't look to Longleaf to get a sense of the value of Dell's business.

[kevin4u2]

 

I remember the US banks a year ago. Europe was going to put them under. Sentiment got extreme and we were all provided a wonderful buying opportunity. My view is PC stocks are equally hated right now and therefore likely a great time to buy...

 

Why a "great" time to buy? I can't understand why something would be great to buy if it is hated. I mean it seems to be hated for very good reasons...not saying that there is no rationale for investing in Dell, but you seem to be implying that the main driver for an investment thesis is that it is out of favor.

 

Welcome to value investing.  Some people "get" it some people don't.  Many times you have to hold your noise because value stocks stink.  Now just because something stinks doesn't make it a bargain, but if you expect to earn outsized returns you won't find them on the 52 week high list.  If buying a stock when all hell is breaking loose isn't your style, perhaps growth investing is more up your alley.

 

Dell is still profitable.  They aren't going anywhere.  Being hated is a benefit when it comes to this one.  Headwinds yes, extinction no.

 

My best purchases have always been when your emotions and the crowd tell you no but the facts and your reasoning tell you yes.

[Palantir]

 

 

Welcome to value investing.  Some people "get" it some people don't.  Many times you have to hold your noise because value stocks stink.  Now just because something stinks doesn't make it a bargain, but if you expect to earn outsized returns you won't find them on the 52 week high list.  If buying a stock when all hell is breaking loose isn't your style, perhaps growth investing is more up your alley.

 

You can just as likely make poor returns buying beaten down, out of favor stocks while they burn cash and go absolutely nowhere and even decline for long stretches of time, after which even the "value" investors get tired, and soon exit the position. It may turn around, who knows what the time horizon is.

 

I'm happy buying a stock when everything is going to hell, but I'd rather aim at a great company at a relative discount. But that's just my preference as an investor I suppose.

[txlaw]

Bought more today but I have to say that dividend is getting more irritating by the minute.

 

Agree.

[txlaw]

It seems to me that Michael Dell realizes that the commodity PC business is going to get really tough and can't do anything about it.  He has trying to move Dell into other areas but Dell has been overpaying for other companies and execution has been mediocre.

 

Michael Dell bought stock when it was higher than the current price.  Now that it is low, the company isn't buying back shares but instead issuing a dividend?!  His actions are saying that he thinks the company will enter a period of mediocre economics.  He is in a bad business and doesn't know how to get out of it.

 

Dell has not been overpaying, and execution has been decent, though not stellar. 

 

I agree that the dividend is crazy.  Why now? 

 

Not true that Dell doesn't know how to get out of it.  They've been getting out of it for the last few years.  Focus on the ES&S.

[txlaw]

Didnt Eric point out not long ago that Longleaf was pounding tha table at $30 in 2006 or 2007?

I think the point is that the value isn't in the commoditized, poor prospect business, as Longleaf pointed out. But, yes, Longleaf has been completely wrong about Dell for many years -- and they've changed the thesis of their investment over the years, too. I wouldn't look to Longleaf to get a sense of the value of Dell's business.

 

Longleaf was wrong on the price, but not the general long term thesis. 

[Shane]

I have a small position in Dell and am not convinced they won't pull this off.  Longleaf certainly sounds as if they were 100% wrong on this company to be honest though.  They initially wanted it because it was a dominant business, they must have been referring to the PC business because the ES&S business they are not a dominant player in...  Now that Michael Dell is changing directions they seem to be willing to wait it out with him...

[ItsAValueTrap]

Dell has not been overpaying

It paid a ridiculously high multiple for Compellent (200+), which used to be publicly traded.  Wikipedia has a list of Dell's acquisitions.

http://en.wikipedia.org/wiki/Dell#Recent_plans_and_acquisitions

 

I've read Michael Dell's book (which has no information on Dell's current strategy) and I'm going through Louis Gerstner's (IBM).  I still don't get Dell.

In Michael Dell's book, I get the sense that he has listened to his CFO and got an understanding of return on capital and why it's important to turn over your inventory quickly.  I'm sure he understands dividends versus buybacks.  And I think he understands selling stock when it's expensive via secondary offerings.  So I don't understand what Dell is currently doing.