IF THIS MARKET has taught us anything, it's that all things are relative.
Consider the case of Dell Computer (DELL), which on Thursday ignited an 8.9% one-day surge in the Nasdaq Composite (and, in turn, a remarkable 402-point, 4% jump in the Dow Jones Industrial Average).
Not so long ago, Dell was a champion stock — a staple in any growth investor's portfolio. In 1997, 1998 and 1999, it rose 216%, 248% and 39%, respectively. But last year, the bottom fell out as the company grappled with moving into higher-margin server and storage products amid a permanent slowdown in the PC business. The stock, which had performed so well for so long, fell nearly 66% in 2000, leaving it at levels not seen since early 1998.
Then a funny thing happened. Despite the fact that both the economy and PC demand have slowed precipitously this year — not to mention the Nasdaq — Dell stock has quietly been catching fire. Even before Thursday morning, when it sparked a broad rally by reaffirming reduced earnings estimates, Dell had gained 27% year-to-date. It soared 13.5% on the earnings news and now sits 45% higher on the year. The Nasdaq, meanwhile, has plunged nearly 27% since January and 65% from last year's March peak.
Why the upswing? The computer maker's chief virtue at the beginning of the year was that it was trading at just $17.44. That was a lowly 25.6 times trailing earnings — far below its five-year average multiple of 48 — which put it on the value investor's radar screen. Other than that, however, the news has hardly been spectacular. The best thing about Thursday's announcement was that it wasn't spectacularly bad.
Dell's quarter doesn't end for another month, and, citing economic uncertainty, the company declined to give analysts any guidance on what to expect for the full year. What it did say was that cost-cutting would allow it to meet its already reduced target for the quarter of 17 cents a share in earnings on revenue of about $8 billion. That's reassuring, there's no doubt about it. But is it really worth the extra $7.76 billion investors pumped into the stock on Thursday?
The truth is, Thursday's run is really just an extension of a value rally that began among several PC-related stocks earlier this year. Indeed, several big computer-hardware names have put up some pretty amazing returns. Consider that shares of Dell, Apple Computer (AAPL) and IBM (IBM) have gained 45%, 44% and 15.5%, respectively, year-to-date. And in the software and chip camps, Microsoft (MSFT) has risen 31%, while Advanced Micro Devices (AMD) is up a stunning 66.7%.
Consider the case of Dell Computer (DELL), which on Thursday ignited an 8.9% one-day surge in the Nasdaq Composite (and, in turn, a remarkable 402-point, 4% jump in the Dow Jones Industrial Average).
Not so long ago, Dell was a champion stock — a staple in any growth investor's portfolio. In 1997, 1998 and 1999, it rose 216%, 248% and 39%, respectively. But last year, the bottom fell out as the company grappled with moving into higher-margin server and storage products amid a permanent slowdown in the PC business. The stock, which had performed so well for so long, fell nearly 66% in 2000, leaving it at levels not seen since early 1998.
Then a funny thing happened. Despite the fact that both the economy and PC demand have slowed precipitously this year — not to mention the Nasdaq — Dell stock has quietly been catching fire. Even before Thursday morning, when it sparked a broad rally by reaffirming reduced earnings estimates, Dell had gained 27% year-to-date. It soared 13.5% on the earnings news and now sits 45% higher on the year. The Nasdaq, meanwhile, has plunged nearly 27% since January and 65% from last year's March peak.
Why the upswing? The computer maker's chief virtue at the beginning of the year was that it was trading at just $17.44. That was a lowly 25.6 times trailing earnings — far below its five-year average multiple of 48 — which put it on the value investor's radar screen. Other than that, however, the news has hardly been spectacular. The best thing about Thursday's announcement was that it wasn't spectacularly bad.
Dell's quarter doesn't end for another month, and, citing economic uncertainty, the company declined to give analysts any guidance on what to expect for the full year. What it did say was that cost-cutting would allow it to meet its already reduced target for the quarter of 17 cents a share in earnings on revenue of about $8 billion. That's reassuring, there's no doubt about it. But is it really worth the extra $7.76 billion investors pumped into the stock on Thursday?
The truth is, Thursday's run is really just an extension of a value rally that began among several PC-related stocks earlier this year. Indeed, several big computer-hardware names have put up some pretty amazing returns. Consider that shares of Dell, Apple Computer (AAPL) and IBM (IBM) have gained 45%, 44% and 15.5%, respectively, year-to-date. And in the software and chip camps, Microsoft (MSFT) has risen 31%, while Advanced Micro Devices (AMD) is up a stunning 66.7%.
