When it comes to investing in tech stocks like Dell (DELL), it’s all about momentum. Here we’re talking about momentum in both the fundamental aspects of a company, and in the price of the shares. Those on the wrong side of momentum can get caught in a veritable vortex of selling, while those who jump on a tech issue when the momentum is to upside usually reap big rewards. This has certainly been the case with computer maker DELL stock in 2010.
The shares collapsed to start off the year, then the momentum shifted and Dell went on a protracted run higher. In April Dell came down with the rest of the market and actually fell to multiyear lows by early July. Now, however, the stock is on the upswing again, thanks in large part to bargain hunting and a little help from chipmaker Intel Corp. (INTC). The question now is — will Dell’s latest wave of upside momentum continue? Here are five reasons why the answer is yes.
The Intel Factor. After the closing bell on Tuesday, July 13, Intel reported much better-than-expected earnings that included comments about a marked increased business spending on technology and the PC upgrade cycle. As expected, the news helped Intel shares power higher in Wednesday trade. However, the real winner was Dell, whose shares surged 2.4% in the wake of the Intel news. Intel’s bullish comments on business spending upped the ante on the notion that companies are upgrading their computer systems, and if this theory holds up, PC makers such as Hewlett-Packard (HPQ) and especially Dell, which has strong business PC sales, will be the chief beneficiaries.
Dell Upgrade Momentum. Another form of momentum on Dell’s side is the recent rash of analysts who’ve upgraded the stock. Since mid-May, there have been four prominent research firms who have weighed in positively on the stock. On May 17, Brean Murray initiated coverage on Dell with a “Buy” rating, and a price target of $18. One week later Argus upped the shares from “Hold” to “Buy” with a $19 price target. June saw Stifel Nicolaus reiterate its “Buy” rating on the stock; however, the firm did lower its price target from $18 to $16. Finally, in July UBS upped the shares from “Neutral” to “Buy” with a $15.50 price target. In these analysts’ eyes, Dell is definitely worth a look.
Dell Stock a Heck of a Deal. The April through July drubbing in Dell shares has had a perverse effect on the stock. With Dell hitting those multiyear lows in July, bargain hunters are realizing the stock is one heck of deal. That’s precisely what UBS analyst Maynard Um has said of the stock. Um argues that Dell will be the beneficiary of more corporate PC spending in the second half of the year, and that its depressed share price translates into a “compelling opportunity” for investors.
Solid Dell Earnings ahead. On August 19, Dell is due to let the Street know how well it performed in fiscal Q2. In May, the company beat expectations by 3 cents a share, but unfortunately for investors that earnings beat came right when the market at large was under heavy selling pressure (there’s that momentum factor again). If Dell can meet or beat expectations calling for 30 cents per share, and if the company delivers an upbeat forecast, those who buy the shares now could be in for a very nice reward.
Dell’s Oversold Technicals. From a technical perspective, it’s easy to see why Dell is a ripe opportunity for buyers at current levels. Despite the July surge in the stock, Dell shares remain below both their short-term, 50-day moving average and their long-term, 200-day moving average. If the buying continues, and if Dell can break above both of these key technical levels, look for a whole host of new technical buyers stepping into to Dell.
As of this writing, Jim Woods did not own a position in Dell stock.
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