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business newsSix Reasons PC Stocks Haven't Bottomed Yet
Things are bad, but these tech companies aren't yet on their hands and knees.
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-- Dalton
On July 7, I made the case that it was time to dump PC stocks.
Despite strong industry unit growth and dirt-cheap valuations, Apple’s (AAPL) powers of disruption and crowd psychology favoring the latest and greatest would act as an anchor on the industry’s neck.
This call has been correct. The S&P 500 and NASDAQ 100 are both up over 1% since then, while virtually all PC stocks -- including names like Intel (INTC), Dell (DELL), NVIDIA (NVDA), Seagate (STX), and Advanced Micro Devices (AMD) -- are down, in some cases significantly.
But is it time to call a bottom?
I’ve got six reasons to say no:
1. Intel’s Acquisition of McAfee (MFE)
Intel is looking to diversify away from the PC industry’s boom-and-bust cycle, and McAfee does that in two ways.
- It has a large subscription-based revenue stream and
- Security expertise will supposedly help Intel get more mobile-device design wins.
So if Intel wants to distance itself from being a pure PC-industry unit-growth play, what does that say about the industry?
2. Dell’s Weak Gross Margins
Dell delivered another gross-margin disappointment on Thursday, blaming rising component costs.
However, costs are only one part of the gross-margin equation -- there's also price. The PC industry ex-Apple has backed itself into a corner by focusing entirely on commodity machines that are pretty much all the same.
And when everything looks and functions the same, prices can only go down.
3. Back-to-School Looks Lousy
On their respective earnings calls yesterday afternoon, both Hewlett-Packard (HPQ) and Dell issued somber outlooks for the back-to-school selling season, typically a strong period for PC sales.
These reports confirmed existing rumors that PC-component order rates out of Taiwan were slipping.
4. The iPad Effect
The Apple iPad has swiftly taken a chunk out of the low-end laptop and netbook business and thus far the traditional PC players have had no answer. Google (GOOG) Android-based tablets are on the way, but if that market resembles the Android smartphone market, there may be few real beneficiaries when it comes to actual stock-market performance.
5. The Downtrodden Consumer
The malaise is on! This week, we saw profit disappointments from the likes of GameStop (GME) and Sears Holdings (SHLD). On the macro-economic front, jobless claims just hit the 500,000 mark. Last week, the Fed basically told us that everything stinks. Households are also spending less and saving more.
6. The News Isn’t Quite Bad Enough
The best time to buy cyclical stocks is when things are awful. You want to see big earnings misses, low stock prices, and high P/E ratios. We’re not quite there yet. There are clearly cracks in the foundation, but I want to see earnings machines like Intel and HP on their hands and knees before hitting the buy button.
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