Some very interesting news on Monday, as Goldman Sachs (NTYSE:GS) came out with an upgrade of personal computer maker Dell (NASDAQ:DELL). Previously Goldman had rated the company a “sell”, but now it is calling for a “buy.”

The sharp reversal comes as a result of valuation and other factors. With the stock down some 31% since the initial “sell” rating, Goldman believes a reversal is imminent. On valuation, the stock is valued at an enterprise value/EBITDA multiple of 3x, significantly below the average stock covered by the Dell analyst.

Goldman states that demand for personal computers is depressed and so widespread a contrarian view might be warranted. Finally Goldman claims Dell might be attractive from an LBO standpoint. That was enough for pre-market traders on Monday as shares of Dell jumped 6% on the news before settling in on the day with a 5% rise.

Quick Analysis

This looks like a classic Wall Street contrarian play from Goldman. Ah, to have such power. A stock is down so much it has to reverse. Let us be the one to start the reversal. Is the move justified or is this simply more Wall Street manipulation?

It sure looks bleak for the PC. Can Dell withstand more bad news in the market? I just don’t see it. The world has changed significantly, leaving the PC to die on the vine. It is not pretty, but that is the whole point of the upgrade.

They say the time to buy is when there is blood in the street. Microsoft’s (NASDAQ:MSFT) delivery of the Windows operating system to market might be the spark the poor PC needs. Any sign of good news might just set off a short covering rally in the stock that could double Dell’s share price from here.

I’m inclined to play along with Goldman here. There are risks for sure, but as Goldman pointed out, the risk/reward is in your favor here.

Action

Buy some Dell shares for a nice 20% rally over the next three months.