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Time to Sell Dell, Buy Cisco and HP

It seems as though not too long ago the company was riding high on the stock market as it quickly dismissed early threats of Gateway to keep its dominance as the built-to-own brand. Dell was able to successfully leverage its quality and popularity to become a powerful force in both the consumer and enterprise environments. It just seems as if things got off course due to the growing popularity of not only Apple but also due to the overall trend of increasing use of mobile devices which coincides with declining PC sales.

The company is now the perfect example of how a market leader can quickly become a has-been if it does not adapt. In essence, it is quickly becoming the hardware version of Novell, Netscape and Lotus which were all easily killed off by Microsoft (MSFT). As with Research in Motion (RIMM), it seems that Dell is on the path toward irrelevance, being victimized by Apple. Meanwhile HP recently demonstrated that it can do just fine by making a few strategic adjustments.

The question is, what will it take for Dell to inspire the same level of optimism? Even more important, how can it get investors and analysts to believe?

Bottom Line

So far it appears that the company's management has been unable to find the right formula to convince Wall Street that, even at a paltry price-to-earnings multiple of 6, it still has value as an investment. While the shares may look like a bargain at these levels, I can also see how it can trap some unsuspecting investors who don't really see the sad story that Dell has become.

From an investment standpoint, until the company can show that it can execute and overcome distractions from some recent acquisitions such as SonicWall, I would stay away from Dell and instead buy Cisco and HP which offer much better value with better execution.

For now, I have to concede that Dell is one stock that Wall Street has gotten right and I have to also admit that I was wrong for calling it a buy ahead of earnings.

At the time of publication, the author was long CSCO, AAPL and MSFT.
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