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NEW YORK ( TheStreet) -- Almost every day the headlines read "The PC is Dead." I want to add "...and so is Dell(DELL)." This stock shows that professional investors are sometimes wrong about the investment quality of a stock.
As I have said, for a stock to be a long-term investment that has a place in a conservative retirement account, it should have a forecast of at least 10% increases in revenue, earnings and total return. Anything else is a speculative situation that should be traded on technical analysis. Let's look at what I mean.
In the past nine months, Dell has had one bad earnings report after another and investors are leaving in droves. Just look at this graph provided by
Barchart showing price against the 20-, 50- and 100-day moving averages and the 14-day turtle channels:
Do you think owning this stock would improve your portfolio returns? Let's look at the numbers.
Factors to consider (Technical indicators provided by
Barchart.): The stock has a 90%
Barchart technical sell signal and a
Trend Spotter sell signal. The stock trades below its 20-, 50- and 100-day moving averages, lost 10.31% in the last month alone and trades 47.93% off its one-year high. The Relative Strength Index is a weak 31.42% and it recently traded at $9.55, which is below its 50-day moving average of $10.96.
Fundamental factors: Wall Street has always been interested in the company's numbers and 26 brokerage firms have assigned 33 analysts to make recommendations. They project sales to be down 7.20% this year and recover by only .20% next year.
Earnings are estimated to decrease by 17.80% this year and recover by only 2.30% next year. A 4.53% annual total earnings increase is forecast for the next five years. The P/E ratio is 4.88 compared to the 15.30 P/E of the market, the dividend rate of 3.31% is about 25% of projected earnings and higher than the 2.30% dividend rate of the market. The company manages to maintain an A financial strength rating.
Analysts think that if their projections are correct, investors should see an annual total return in the 25% to 29% range mostly from an increase in the P/E ratio, not necessarily from increases in revenue and earnings.
TheStreet gives the stock a weak C rating. The company is trying to turn its battleship and change the product mix to be less PCs and more networking and server products but competition is high. The only bright spot is lower earnings will drop the company's tax rate.