Dell’s founder feels that he has a chance to lean on the company’s steady server business and acquired enterprise solutions puzzle pieces to build a legitimate company, but now it seems as if greedy shareholders will just watch a gutted Dell bleed to death slowly after culling away a monster dividend.
Some bullish analysts feel that Dell’s worth more than the sum of its parts, but this is a depreciating asset. Dell’s exit strategy is about to become an exit wound. Ride the circus for now, but make sure you’re not one of the last to leave the big tent as it comes down.
As I do every week, I don’t talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let’s go over the three fill-ins.
- Google Inc (NASDAQ:GOOG) : Four years ago no one could predict that Google’s Android would be the mobile platform to beat. “Dell has a history of fumbling away opportunities in non-PC areas such as portable media players and HDTVs,” I wrote four summers ago, as Dell smartphone rumors began to surface. “A telco hat on Dell’s head might well look more like a dunce cap. Does Dell stand a chance in a country with tens of millions of BlackBerry and iPhone owners tethered to two-year contracts?” Well, I was wrong. There was room for one more major player, and it was the open-source juggernaut in Android. Dell has rubbed elbows with Google Inc (NASDAQ:GOOG), but it’s doomed. If Dell goes private it will be partly bankrolled by a $2 billion loan from Microsoft Corporation (NASDAQ:MSFT) . Clearly this is Mr. Softy keeping its fading Windows platform alive with a major hardware partner, though in the end it will only hurt Dell Inc. (NASDAQ:DELL). Either way, Google Inc (NASDAQ:GOOG)’s the tech darling growing at a double-digit clip.
- Apple Inc. (NASDAQ:AAPL) : Betting on Apple isn’t very popular these days, but since I was on CNBC last week recommending Apple just minutes after it appeared to have bottomed out at $419, I may as well pound the table again. It’s true that Apple’s margins will contract from here, but this doesn’t mean that Apple will stop growing. Margins will shrink as Apple takes a more competitive slice of the mainstream global market in smartphones and tablets. With Apple’s back to the wall, you just know that it’s going to introduce at least one new product category this year to renew buzz. Apple now yields 2.5% and trades for less than 10 times earnings. It’s a bargain with untapped catalysts that have yet to materialize.
- Cisco Systems, Inc. (NASDAQ:CSCO) : If you want to bet on a tech turnaround story, check out the router king that was briefly the country’s most valuable company before the dot-com bubble popped. Cisco Systems, Inc. (NASDAQ:CSCO) seemed left for dead as business tanked during the global recession and it unloaded its consumer businesses. However, Cisco has turned around in a big way. It’s hitting fresh 52-week highs, and its revenue and earnings are growing again. If you’re considering Dell on the strength of its server business in this connected world, the smarter bet is to make Cisco Systems, Inc. (NASDAQ:CSCO) your blue chip networking play. At 11 times earnings and packing a reasonable 2.6% yield, the worst is shrinking in Cisco’s rearview mirror.
The article Throw This Stock Away originally appeared on Fool.com and is written by Rick Munarriz.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, and Google. The Motley Fool owns shares of Apple, Google, and Microsoft.
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