Here's How to Play Dell Stock Now

Like a commuter caught in an early evening traffic jam, Dell (UNKNOWN: DELL.DL  ) stock is stuck under $13.65 a share. Investors don't believe Carl Icahn's $14 bid is serious, even if the fight between Icahn and Michael Dell is all that and more.

"Can you imagine a real estate broker running advertisements warning of termite danger in a house each time a prospective buyer seems interested?" Icahn wrote in an open letter to shareholders.

He's referring to a late March filing in which Dell described its prospects as bleak enough to require a total overhaul of the business, an overhaul best executed as a private entity. Who's right?

Let's address that question in context. Here's a by-the-numbers look at how Dell stock compares to peers Apple (NASDAQ: AAPL  ) and Hewlett-Packard (NYSE: HPQ  ) :

Key Statistics
Dell
Apple
HP

Current share price

$13.48

$432.25

$25.44

Shares outstanding

1.76 billion

938.6 million

1.93 billion

Market cap

$23.7 billion

$405.5 billion

$49.1 billion

Trailing P/E ratio

12.74

10.31

Not available

PEG ratio

2.24

0.52

Not available

Gross margin

21.1%

39.5%

23.6%

Cash from operations

$3.38 billion

$55.26 billion

$13.02 billion

Sources: S&P Capital IQ and Yahoo! Finance.

And here's what Fools say, going by the data available in our CAPS investor intelligence database:

CAPS Category
Dell
Apple
HP

CAPS stars (out of 5)

**

****

**

No. of CAPS ratings

5,686

30,076

3810

Bullish CAPS ratings

3,982

27785

3406

Bearish CAPS ratings

1,704

2291

404

Bull ratio

70%

92.4%

89.4%

Source: Motley Fool CAPS.

Fools have expressed mixed views of the Dell's go-private plan for months. The last CAPS All-Star to weigh in abandoned the stock in April. "PC sales [fell off] much steeper than I expected," wrote Flygal5 in giving the stock a thumbs-down rating in CAPS. "I was wrong on this one, got to stop listening to Southeastern Asset Management."

Ouch! I'm not so sure Southeastern deserves such harsh criticism.

Verdict: Sell Dell stock now
And yet it's worth noting that Southeastern has sold half its stake in Dell to Icahn. Explaining the move in a statement to Businessweek, the firm said Icahn is  "in the best position" to lead the fight for a better offer. I suppose just saying "we have to move on" would have been too forward?

To be fair, those holding on are still due a dividend payment yielding 2.4% annualized. Dell also continues to partner with Oracle for serving data centers and other larger-size customers. There's plenty of life left in the business.

But can Icahn force a sale above $13.65 a share? I don't think so. Not with Southeastern moving to the sidelines. Do you agree? Let us know what you think of Icahn's chances, and whether you'd buy, sell, or short Dell stock at current prices, using the comments box below.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 22, 2013, at 1:11 AM, donhiroller wrote:

    Just get out of Dell. I had over 10000 shares in

    the late 2000 that I had bought back in the late 80's

    What a bath. This in my opinion was all because Dell did not attempt to keep up with the growing market demands.

    They were still desk tops when lap tops were in demand and then no note books.

    Lesson learned on single owner companies. Dell treated this like his personal playground despite warnings from others he fired. Result pennies on the dollars and no hope now for recovery. Good luck Michale on trying to recover by a buy back you don't have enough money to satisfy the people your hurt and it will show in your future sales.

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