It's going to be a big weekend here at Chez Melvin. The baseball playoffs start tonight, and my beloved Orioles are in a one-game playoff against the Texas Rangers. Being married to a San Antonio girl, I am usually a big fan of all things Texas, but for tonight they are the evil empire. It is also a big football weekend, so I hope to spend a lot of time on the couch yelling at the television for the next few days. Along the way, I have a stack of reports to read and screens to run, so it will be a busy weekend.
My biggest research effort right now will be combing through reports from technology companies. I am not a big tech guy, and I don't have a deep understanding of the nuts and bolts of bits and bytes, so I'll be spending some time talking to tech-savvy friends as well. Pockets of technology are getting very cheap on a statistical basis, and these appear to be worthy of deeper exploration.
Before I name names, I want to make sure we are all on the same page. Last week I described Xyratex (XRTX) as safe and cheap right before the stock tumbled. A reader chastised me for a bad pick after the decline. I disagree. I am a scale buyer who holds stocks for a very long time, so a stock sinking in the short term is actually a happy event for me. Also understand that, no matter how much I like a stock, if the market is up that day, the odds of me rushing out to buy the shares are miniscule. I buy crashes, corrections, slides, dips and drops. If the stock is up on the day, I will not buy that day. I stay small and move slowly, building my positions on weakness in hopes of selling on strength someday. If I own the stock or am buying that day, I will always disclose that fact.
With that out of the way, the technology group is getting interesting. Some virtually iconic companies have seen their stock prices slide, even as the market has risen this year. The personal-computer business has slowed to a near crawl amid a weak economy, and as consumers have moved to tablet devices for many of their mobile-computing needs. The anticipated October release of Microsoft's (MSFT) Windows 8 has also been a drag on new-unit sales over the past few months. Sales of software have been slowed by a cutback in government spending, as well as by reductions in government spending on almost every level for upgrades.
Hewlett-Packard (HPQ) is probably the poster child for beaten-down tech stocks in 2012. The company has seen its stock price drop by 40% in 2012 as efforts have fallen flat at reorganizing and righting the ship. I am very intrigued by this stock, as it is cheap on many metrics, but after the analyst day this week I am going to wait for the stock to trade closer to my $10-per-share liquidation value estimate. I am very interested to see what Seth Klarman and Ralph Whitworth have done with the stock this quarter, as the price plummeted after they took sizable stakes in the second quarter.
Dell (DELL) is one of the largest PC companies in the world, and the stock is now trading in single digits for the first time since 2009. Revenue remains weak, and there is intense price competition in the PC market right now, and that will weigh on both the top and bottom line. The company is seeing some strength in servers and storage sales, but it is fairly small compared with the core PC business.
The business is not going to turn around on a dime, and there is no need to dash out and buy the stock. However, there are long-term positives here, and the company is rock-solid financially, with more than $7 billion in net cash and investments on its balance sheet. After falling by 40% in the last six months, Dell is now a decent dividend stock with a 3.3% yield. Michael Dell still owns almost 14% of the company he founded, and I cannot imagine he won't focus on improving the business and moving the stock price higher over the new several years.
I am examining several of these fallen tech giants over the weekend in order to see if and where I'll want to start scaling into the shares. The market for these companies' products and services is still very weak, so there is no rush to buy the shares. However, it is time to do the homework and get ready to accumulate your favorites in a market decline.