The personal computer, which brought us thousands of percentage points of returns in the 1990s, is dead as an investment theme. In case you hadn't noticed.

But that doesn't mean there is no reason to consider owning shares of


(DELL) - Get Report

, which have been stuck in a holding pattern for a year.

Did I really say Dell? The mere mention of that single syllable elicits a variety of reactions from seasoned investors.

In the mid-1990s, when many came into the market, it was nothing for the stock to rise $5 a day, well before the era of the neurotic Internet stock. The weeks of its earnings reports were exciting events. Shares rose 92,000% from 1990 to 1999. It made fortunes for ordinary people, launching thousands of BMW sales and down payments on first homes.

If you've owned Dell for the past three years, on the other hand, you're probably sick of it. In a double-blind test, you couldn't distinguish its price chart from that of an electric utility. It's flatter than day-old Pepsi.

The future will be different: Not as great as the '90s, but not as bad as the past 36 months, either. All that boring, sideways trading between $31 and $37 recently is probably accumulation, as long-term players regularly come into the stock at the bottom of the channel in anticipation of a new cycle of success. The company is unmooring from its roots as a PC vendor and moving up the value chain into high-demand enterprise storage and high-fashion consumer electronics.

Superb Growth

It's not like the personal computer is disappearing, though. Globally, shipments are expected to reach 185 million units in 2004, fulfilling the wildest expectations of PC bulls of the early 1990s.

Analysts at Gartner Group may have recently cut their PC sales growth estimates for the year to 12.6% from 13.4% in the wake of soft results witnessed throughout the economy, but let's get real: Double-digit growth, at four times the rate of U.S. GDP growth, is fantastic. The prosperous soft-drink industry is happy to post 5% annual growth. The beer industry grows at about a 1% pace.

The problem is that the PC business has become what the skeptics of the 1990s forecast: cyclical. This means there will be prosperous years and lousy years. For investors, that means you need to buy on troughs and sell on crests. PCs have become much like the automobile industry, which is a replacement business. You don't buy a new PC anymore because you are tantalized by its awesome new speed or graphics capabilities, but because you need one for some reason.

Bret Rekas, a Minneapolis-based hedge fund manager specializing in technology stocks, said he has a five-year-old laptop on his desk running Windows 2000. Sure, it's old, he said. But the father of new twins said that if he's going to drop $2,000 on something, it will be on a vacation for him and his wife -- not a thinner, slightly faster computer.

The Replacement Cycle Works

What draws Rekas and his ilk back to PCs? The replacement cycle. Gartner analyst George Shiffler says the buildup of older PCs in the installed base at homes and businesses around the country is exerting strong pressure. They weren't built to last forever. The operating system made by


(MSFT) - Get Report

wears down, and the machines slow to a crawl. They will be replaced because they start acting like old clunker cars. It's one thing if they don't look like much, but when they don't work well anymore even to surf the Web, it's time to pony up for a new model -- particularly one with an awesome new graphics card.

Most PCs are bought by companies, however, and the bosses have been stingy. U.S. corporations have built up a huge cash hoard in the past couple of years, probably anticipating another major economic turndown akin to the ones that afflicted the country amid the oil shock of the mid-1970s, or the mild recessions of 1990, 1994 and 2001.

But if energy prices hold fast and developing-world consumer demand continues at the current or slightly slower pace, world economic growth could surprise investors in 2005. The Economic Cycle Research Institute's weekly leading index, which has correctly forecast every recent slowdown and recession, has pulled out of its 2004 nosedive in the past few weeks and stabilized. The index hasn't turned back up yet, but on the ECRI's 30-year chart, the abrupt change of direction looks eerily like ones that occurred at the end of 1982 and 1994, just before sharp changes in the nation's economic fortunes.

The Wal-Mart of PC Makers

As information-technology spending turns up a bit itself, Dell has probably better prepared itself to succeed than any of its vendors, such as Microsoft,


(INTC) - Get Report



(NVDA) - Get Report

TST Recommends


Western Digital

(WDC) - Get Report

. That's because Dell is a lot like


(WMT) - Get Report

: It's a dominant low-overhead retailer with the power to grind vendor prices down to the bone to expand its own margins. Component makers' shares would rise sharply from today's extremely depressed levels in the event of anticipation of an industrywide upturn, but Dell is more likely to be able to sustain a move.

In 10 years, after the next peak, dozens of little vendors will merge or get wiped out. Dell, however, will survive. That's what longer-term investors will focus on.

Helping Dell to thrive is its proven ability to push into the enterprise space and offer midrange product functionality at low-range prices -- undercutting the likes of


(HPQ) - Get Report



(IBM) - Get Report

to gain market share. What it has done in PCs it is now doing in storage, printers and IT management/deployment services, which are the fastest-growing segments of technology.

Partnering with industry goliath



to provide top-notch network storage systems on a direct-sales basis has been a masterstroke, generating new higher-margin sales for Dell that extend well beyond the PC.

And on Sept. 1, Dell launched three aggressively priced color laser printers based on the technology of partners, including a high-end model that does 25 pages per minute in color for $999 -- half the price of similar functionality from H-P. Moreover, its toner pricing is 0.6 cents per page for black and white and 6.9 cents per page for color -- 67% and 28%, respectively, below H-P pricing, according to analyst Shannon Cross of Cross Research LLC.

The Numbers: Very Impressive

Dell sales have totaled $45 billion in the past 12 months and are still growing at an impressive pace, about 19% a year. Meanwhile, earnings ($3 billion in the past 12 months) are still growing at an annual rate of 19% to 25%. Cash flow, slightly less awesome than a few years ago, is still ridiculous at better than $3.6 billion a year. The next big goal, according to the company, is $60 billion in sales by 2006 at the same level of profitability.

Founder and chairman Michael Dell gave up the CEO reins this summer to Kevin Rollins. Essentially, though, they run the company together now as they always did -- focusing much more on perfecting efficient manufacturing and distribution practices than on innovative technology. In a price-conscious world of commodity products, that is bound to be a winning formula for many years to come.

The problem with Dell's share price has not been the business; it's been a contraction of its P/E multiple to account for slightly lower expectations. That may be almost complete now, so if you're patient, you're likely to see that the share price will follow earnings growth over the next year and beyond.

Jon D. Markman is publisher of

StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. At the time of publication, Markman was long Dell and Microsoft. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at; please write COMMENT in the subject line.