Mr. Market is doing his mood swing thing over Dell. He loved the company two years ago, and he hates it today, having put Dell shares on sale at 60% off low-low prices.
Back then Dell’s direct model was aces, its products were super, and its CEO (Kevin Rollins) was a star; now its direct model is broken, its batteries are dangerous, and its CEO needs to resign. Meanwhile, of course, Mr. Market is inordinately fond of HP, with its stock having more doubled in the last year or so. Its selling model is great, its products are wonderful, and its CEO is great.
Mr. Market needs a tranquilizer. Dell isn’t that bad, and HP certainly isn’t that good. The latter is mostly a beneficiary of long overdue layoffs, plus a profitable printer business’s implicit subsidy to PC prices. It’s still a cluttered company with a confused message. Dell, on the other hand, is struggling right now, but most of its problems look to be behind it (assuming it doesn’t fall into the options trap), and on a hypothetical future paired trade I would rather be long Dell and short HP than the other way around.