Dell Shouldn't Fell Most PC Makers

It's interesting to note that the reaction from brokerage research departments has not been as negative as the market's reactions. To me that's surprising, and it should be considered a warning on just how much weight an investor should put on Wall Street research. Among the reiterations on Dell:

• UBS maintained a buy rating but cut its price target to $48.
• Prudential maintained its overweight high-risk rating.
• Raymond James maintained its outperform rating.
• Smith Barney maintained a buy and a medium-risk rating and reduced 2007 and 2008 EPS estimates from $1.88 and $2.20 to $1.81 and $2.10.
• Lehman Brothers says weakness is a buy.
• Goldman Sachs downgraded the stock from outperform to in-line.

Collateral Damage Will Be Limited

Other PC makers shouldn't be too damaged by Dell's selloff. A look at the chart profile for each shows why.

Apple Computer(AAPL Quote) is currently 5.9% overvalued with fair value at $41.53, and it has a positive weekly chart profile. This is a much better screen than what we saw when I first profiled the stock on March 1. Back then, the stock was around 77.9% overvalued, trading near $44.50. After declining more than 20% into April and May, Apple held my annual value level of $34.22 and was 12.4% undervalued. With the success of the iPod and its positive halo effect on sales of Apple computers, Apple can hold up better than Dell on weakness. I view Apple's current fair value level of $41.53 as support, but shares should have difficulty rising above my monthly risky level of $45.38.

Fellow PC maker Hewlett-Packard(HPQ Quote) also has a positive weekly chart profile, but the chart profile shows that the stock is also overbought. My overbought reading is a 12x3 weekly slow stochastic, which is above 80 on a scale of zero to 100. Also 13.9% undervalued, the stock's fair value is $28.08. A close today below the five-week modified moving average at $24 would shift the weekly chart profile to negative, indicating that H-P would follow Dell's lead and decline. A cautious stance is merited here, because my model shows a monthly risky level at $24.54. A weekly close below my annual pivot at $23.56 indicates risk to my quarterly value level at $22.02. My model thus suggests that, like Apple, H-P should hold up better than Dell.

IBM's(IBM Quote) situation is still worth examining in relation to this group, even though the company has diversified away from making PCs. The stock is currently 19.7% undervalued, making fair value $102.97, and it has a positive weekly chart profile. I do not expect IBM to trade up to its fair value this month, because there's a monthly risky level at $83.54. And if there's a market correction, IBM could decline to my monthly value level at $76.65, as IBM should be less correlated to the Dell effect.