Dell (DELL) shares opened over 3% higher today following the company’s positive earnings report last night. The stock fell to a 1.5% gain as of 1 pm. The computer maker was able to beat estimates for sales and earnings in the first-quarter. The company also announced it would cut 8,000 jobs in the coming year.
Some analysts, however, have expressed their displeasure lately as Dell is lowering its expectations by selling at lower margins. Some market watchers feel Dell’s abandonment of direct sales in favor of low-margin retailers such as Wal-Mart (WMT) is emblematic of the problem.
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Dell’s move to sell in Wal-Mart:
The Wal-Mart issue isn’t something all analysts agree on. Crows Business Week wrote, “The move helps Wal-Mart bolster its electronics business and gives Dell a new venue for PCs outside of the faltering direct-sales arena.” And Business Week wrote in their article entitled “Dude, You’re Getting a Dell-at Wal-Mart,” “As befits a merchandising venture with Wal-Mart, the two models offered will carry a low price, each offered in a package bundle under $700. The companies expect high “consumer feedback and purchase response,” Wal-Mart said in a press release.”
The AP was a little more ambiguous with its headline “Analysts Not Sure Dell’s Retail Plans Will Lead to Improved Profitability.”
While Standard & Poor’s equity analyst Jim Yin also expressed his doubts saying the Wal-Mart deal is a “logical” but potentially costly move. He wrote in a May 24th research note, “While this strategic move will generate higher revenues, we believe margins will decline since sales from retail stores have lower margins.”
As an example, today we will take a bullish look at computer manufacturers Hewlett Packard (HPQ), Apple (AAPL) and Dell (DELL). This PowerOptions blog shows how the average investor might use our search tools based on their view of whether a stock will rise or fall. Whatever your personal opinion about the movement of an individual stock, PowerOptions can help you identify the most attractive trade. A bullish investor might choose a covered call investment strategy, bull call debit spreads or bull-put credit spreads. While a bearish investor might choose bear put debit spreads or bear-call credit spreads. Sign up now and try out our search engine risk-free for 14 days.
|PowerOptions covered call Computer Manufacturers (51 days)|
|HPQ||$45.91||HPQGV||07 JUL $45.00||$1.85||4.00%||2.20%||2.20%|
|AAPL||$118.54||QAAGC||07 JUL $115.00||$8.30||7.00%||4.20%||4.20%|
|DELL||$27.38||DLQGY||07 JUL $27.50||$0.90||3.30%||3.40%||3.90%|
HPQ – The Hewlett Packard trade involves the July $45 call option and offers 4.0% downside protection and 2.2% potential profit if the stock is above the $45 strike price at the end of the option period.
Competitors for HPQ include: Canon Inc. (CAJ), Dell Inc. (DELL), International Business Machines Corp. (IBM), Apple Computer Inc. (AAPL), BMC Software Inc. (BMC), 3Com Corp. (COMS), Cray Inc. (CRAY), Datalink Corp. (DTLK), EMC Corp. (EMC), FalconStor Software (FALC), Gateway 2000 Inc. (GTW), Lexmark Intl. Grp. Inc. Class A (LXK), Network Appliance Corp. (NTAP), Opsware Inc. (OPSW), palmOne Inc. (PALM), Sun Microsystems Inc. (SUNW), Unisys Corp. (UIS), and Xerox Corp. (XRX).
AAPL – The Apple trade involves the July $115 call option and offers 7.0% downside protection and 4.2% potential profit if the stock is above the $115 strike price at the end of the option period.
Competitors for AAPL include: Dell Inc. (DELL), Hewlett-Packard Co. (HPQ), Microsoft Corp. (MSFT), Adobe Systems Inc. (ADBE), Avid Technology Inc. (AVID), Creative Technology Limited (CREAF), DivX Inc. (DIVX), Gateway 2000 Inc. (GTW), Napster Inc. (NAPS), RealNetworks Inc. (RNWK), and Sonic Solutions (SNIC).
DELL – The Dell trade involves the July $27.50 call option and offers 3.3% downside protection and 3.9% potential profit if the stock is above the $27.50 strike price at the end of the option period.
Competitors for DELL include: Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Sun Microsystems Inc. (SUNW), Apple Computer Inc. (AAPL), Best Buy Co. Inc. (BBY), Circuit City Stores Inc. (CC), Gateway 2000 Inc. (GTW), Insight Enterprises Inc. (NSIT), Neoware Systems Inc. (NWRE), and palmOne Inc. (PALM).
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