Rational Investors that understand the business cycle tends to outperform the stock market over the long term.  Depending on the stage of the cycle, those who plan ahead can ride the wave to prosperity. Seeing that the average business cycle lasts 4 years, we can have a pretty good idea as to where to put our money (see also, “Prepare Yourself for Prosperity“).

I don’t have to remind you that we are now experiencing an economic “malaise” (I can’t quite call it a formal “recession” yet) and as a result, many portfolios are being pummeled.  However, history has taught us that when an economic downturn ends, growth companies tend to do very well. This is why we’ve seen technology shares moving higher than the rest of the market over the past six months.  So as we start to anticipate an economic recovery and stronger business climate, expect technology stocks to lead the way (see also, “Vishay Intertechnology (VSH): Proving Tech Stocks are Back.“)

Dell Took a Dive

Let’s talk about one technology company that isn’t leading the way: Dell Inc. (DELL). In fact, the upstart computer maker hit a wall hard this year and investors have been shunning the company as a result.

Last week, DELL announced 2nd-quarter earnings that disappointed the market. Despite showing a nice double-digit growth in revenue, DELL’s profit dropped 17%. It turns out that the company paid for that revenue growth with deep discounts that trimmed profit margins.  Chief Executive Michael Dell admitted that the problems at the company were mostly self-inflicted.

Now we all know that Wall Street does not look favorably on companies with poor management.  As stewards for investors and innovation, management is expected to perform. No excuses.

That’s why we saw numerous downgrades of DELL in the bloody aftermath of last week’s earnings report.  It’s also why the stock traded down 13% on Friday, just before the long Labor Day weekend.

Can Dell Deliver?

Over the last year, DELL shares traded significantly lower. In stark comparison, IBM shares are trading higher over the last 52 weeks. So what’s the difference between these two titans? IBM has strong management in place especially during difficult economic times. 

I have to note here that in periods of challenging operating conditions, the cream does indeed rise to the top. Given that technology stocks can be expected to lead us into the next 4-year business cycle, owning DELL at a discount just may be a wise strategy.

Right now, shares trade for 16 times earnings with a modest 12 times forward earnings. 

Of course earnings estimates are being slashed left and right—due to the recent announcement—but the low valuation provides a nice floor for investors.  I can’t imagine things could get much worse for DELL. Ultimately, management gaffes will be corrected which means we can expect higher profit margins going forward.  If the economy does recover, look to Dell to help lead the way.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight likes this, go to: www.InvestorPlace.com.