In an earlier article this morning, Eric Buscemi wrote Time to build a position in Dell? My Answer is, ABSOLUTELY NOT! I will be short and sweet in my methodical reply to this question.
- Dell Inc. (NASDAQ:DELL) built its business in a world that does not exist today. When Michael Dell started he had a good idea, a good mind, a good work ethic and low overhead. Most importantly, he had a market place filled with hundreds of other manufacturers and computer assemblers that were inefficient and ineffective in competing with his enterprise. As Dell grew, he drove competitors out of the business, taking market share all the way. Today, few competitors are left, most of them large and well capitalized companies with strong management. Hewlett-Packard Co. (NYSE:HPQ), Toshiba, Lenovo, Sony Corp. (NYSE:SNE), Gateway Inc. (NYSE:GTW) and Apple Inc. (NASDAQ:AAPL) will not be driven out of business very easily, leaving all companies to jockey for percentages of the market. This is a daily battle and while Dell may be equal to the task, growth will occur only with great effort.
- Dell is operating in a commodity business where price is everything; it has lost pricing power. It is not worth investing in Dell just because the PC market is cyclical and may come back. When it does, competition will remain fierce.
- Pricing power comes with innovation and demand. Apple has it because it has been inventive. If Dell does not become more inventive, offering something special or of unique value, then it is in more trouble than we can imagine.
- Here is my biggest reason of all and the one that I urge you to consider above everything else. There are thousands of stocks to invest in as well as other financial instruments like bonds, real estate, index funds, REITs and more. You cannot invest in everything. As a matter of fact, you can only invest in a few things. Therefore, with all the choices and opportunities in front of you, I say there are so many better things to invest in that it is silly to take a chance on Dell.
Dell might go up in value in the long haul or it might also merge with another company or it might just fade away because of lack of differentiation -- I don't know. For the long-term investor, however, many other companies provide both greater value and greater growth opportunities. If you are a stock trader looking to make a quick buck, while I advise against this practice, you will find other stocks more rewarding too. For a few ideas see my recent article: Optimists view +2 : Down markets are for bargain hunters!
Check out my other posts for BloggingStocks here.
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