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 ( DELL), 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.
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.
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.
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.