PCs Are Dead, Death Knell for Dell

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.

Investor interest: Here is where I think Wall Street has it all wrong. The overly educated CFAs have made 11 strong buy, five buy, 15 hold, two underperform and no sell recommendations to their clients. I'm not sure I interpret their own revenue and earnings projections the same way they do.

I use Motley Fool readers' opinions to gauge the individual investors' sentiment and even its 5,775 readers have given a weak 71% vote of confidence that the stock will beat the market.

Competition: I always like to see how the market views a stock compared to its competition. Over the past year, while Apple ( AAPL) was up 60% and IBM ( IBM) was up 13%, Dell was down 41% and Hewlett-Packard ( HPQ) was down by 45%.

Apple has an A++ financial strength rating and an A rating by TheStreet. Revenue is projected to increase by 23.90% next year and earnings are expected to compound annually at a 24.02% rate for the next five years.

IBM has an A++ financial strength rating and an A+ rating by TheStreet. Revenue is projected to increase by 2.70% next year and earnings are expected to compound annually at a rate of 9.97% over the next five years.

Hewlett-Packard has an A financial strength rating and only a D+ rating by TheStreet. Revenue is expected to decrease by 4.70% next year and earnings are estimated to compound by only 1.75% annually for the next five years.

Yahoo! Finance Profile: Dell provides integrated technology solutions in the information technology industry worldwide. It designs, develops, manufactures, markets, sells and supports mobility and desktop products, including notebooks, workstations, tablets, smart phones and desktop PCs, as well as servers and networking products.

The company sells its products and services directly through its sales representatives, telephone-based sales, and online sales; and through retailers, third-party solution providers, system integrators, and third-party resellers. It serves corporate businesses, law enforcement agencies, small and medium businesses, consumers, and public institutions that include government, education and health care organizations. Dell was founded in 1984 and is headquartered in Round Rock, Texas.

Conclusion: For my investment accounts I want projected steady increase of revenue and earnings and I do not see that from Dell. Only speculators and day traders need to follow this stock and they will be praying for a better P/E.

Your IRA deserves better and if you need to be in this sector, I think you'll agree that the market likes Apple and IBM better than Dell and Hewlett-Packard and so should you.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.