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Dell's Long and Winding Road


Remember, it is Michael Dell's name that appears on every one of those machines that sit atop desks all over the world.

"You left me standing here, a long long time ago
Don't leave me waiting here
Lead me to your door"
-The Long And Winding Road (The Beatles)

"The Long and Winding Road" was The Beatles' last number-one song in the United States. It also happens to be yours truly's favorite Beatles' tune as well. I heard it this morning and it got me thinking about the market in general and Dell (DELL) specifically.

Dell: A $56 stock in 2000 that traded down to $19 a year later. It went back up to $40 in 2004 until bottoming out around $20 again in the fall of 2006. That would constitute both "long" and "winding" in my book.

But it is my belief that the worst is over for this household name. The impetus for change began when Michael Dell took the reins away from embattled CEO Kevin Rollins earlier this year. Although, unfortunately, it is always about the money, in the case of Dell I think it was about a bit more.

Remember, it is Michael Dell's name that appears on every one of those machines that sit atop desks all over the world. At the time of his return, sentiment for the company could not have been worse - both from a consumer perspective as well as from Wall Street's. Michael Dell was wealthy enough to remain on the sidelines, but I believe this became a legacy issue for him. He was not going to allow the company he founded in 1984 to go quietly into the night.

Since then things at Dell seem to be on the upswing. In May it announced that it would begin to sell two desktop models through Wal-Mart (WMT). This is a bit of a seismic shift for a company that saw a lion's share of their revenue come from corporations. And the stock price has not disappointed either, seeing a nice move up to $28 after trading around $22 earlier this spring. Plus, Dell seems to have a tailwind on the global demand side. Worldwide 2nd quarter PC shipments were around 61.1M units, up about 12% year over year. Hewlett Packard (HPQ) still holds the number-one spot with about 18.2% of worldwide shipments, but Dell is a close second with about 15% market share.

Although not heavily-shorted on a percentage of float basis, I do think Dell has been widely under owned by the large institutions of the world. Just yesterday Dell was initiated a buy at Bank of America (BAC) with a $35 price target. Dell is due to report on or around August 30, and with the histrionics of the market recently a lot can still happen. But I believe Dell should be firmly on my radar screen as I see more good than bad down the road, which has truly been both long and winding.
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No positions in stocks mentioned.

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