Palm Shareholders OK a Marriage of Desperation

"We typically don't like gadget companies. When we do like them it's because we feel like they've survived the worst," says John LaForge, co-manager at the (PDSAX Quote)Phoenix-Hollister Small Cap Value fund. Palm fits that profile, he says, which is why his fund has about 1% of its holdings in the name.

"When Mister Softee gets into the business you expect them to be like Wal-Mart. But Palm's weathered the storm quite well. If you walk into a Best Buy or Circuit City, Palm has very good name recognition, even over Microsoft," says LaForge. "I think the brand name will help sustain them. And the fact that Dell's starting to push them more and package them in different deals is very good for Palm."

Against that backdrop of buy-side interest, Palm shares have more than doubled since the deal was announced in June, shooting up from $12.15 to $25.60 as of Monday's close. With a rise of 111%, the stock has sharply outpaced the Nasdaq's climb of 17.4% in the same period.

But some skeptics say the wild stock appreciation may have more to do with an upsurge in investor sentiment than any clear-eyed take on the combined company's prospects.

"We've seen a lot of companies of late that we're not too bullish on that have pretty much doubled. I don't read too much into the fundamentals from that," says Gabriel Erdi, a trader and analyst for the (TPFQX Quote)Marketocracy Technology Plus fund. He says the fund he works for is looking at palmOne as a possible short candidate.

"In terms of the merger itself, it's probably a good thing. But more likely than not it's delaying the inevitable," says Erdi. "Combining resources will help them survive in the interim, but in 2005 or 2006 I don't know how likely that will be."