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I'm not much of a morale massager. If egos need to be stroked, they should probably steer clear of this weekly column, where I bash a single stock to bits.

I'm aiming at a company that used to be great. It was so admired a decade ago that companies in non-competing fields would send their finest on recon tours of the company's operations, just to see what made it tick. Times change.

Don't worry. I'm not some mean-spirited meanie. I wouldn't dream of slamming a stock unless I had three suitable replacements to offer you. And I offer a fair trade, I think. Who gets tossed out this week? Come on down, Dell (Nasdaq: DELL  ) .

Dude, you're vetting a Dell
I don't like picking on companies when they're down, but Dell certainly qualifies. Despite the past few months of rallying markets, shares of Dell still fetch just a little more than half of the company's 52-week highs.

It's easy to see why Mr. Market isn't fond of Dell. Revenue and earnings fell last year, and analysts see even sharper declines this fiscal year. One can argue that most IT-based tech stocks are in a similar funk, but that doesn't excuse Dell for its sloppy performance lately.

Where are the catalysts? This isn't necessarily a rhetorical question. There was a time when I felt though the arrival of Microsoft's (Nasdaq: MSFT  ) Windows 7 would trigger a new upgrade cycle for personal computers, but that's unlikely at this point.

Microsoft is allowing computer users to preorder Windows 7 Home Premium over the next few days for $49, less than half of its eventual retail price, and it's selling briskly. In other words, a growing number of frustrated Vista users -- and those rocking it old-school with XP -- aren't going to bother upgrade to a new PC to get their hands on the new operating system.

Sure enough, despite the Windows 7 buzz, marketing research firm Gartner still predicts a 6% dip in PC shipments this year. Dell's slice of the diminishing pie is also likely to shrink, since it lacks the upmarket proprietary appeal of Apple (Nasdaq: AAPL  ) and isn't as prominent in the entry-level netbook market as are Asian specialists such as Acer and ASUS.

Another flawed catalyst is the long-rumored Dell smartphone. Dell has a history of fumbling away opportunities in non-PC areas such as portable media players and HDTVs. A telco hat on Dell's head might well look more like a dunce cap. Does Dell stand a chance in a country with tens of millions of BlackBerry and iPhone owners tethered to two-year contracts? Does it really want to fight for scraps of what's left of the market of late adopters who can actually afford the steep monthly smartphone contracts? Whether Dell enters this organically, or whether it tries to make up for lost time by snapping up Palm (Nasdaq: PALM  ) , what's the point?

Sorry, Dell. The catalysts just aren't there.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • Research In Motion (Nasdaq: RIMM  ) : Until it's dethroned, Research In Motion's BlackBerry remains the market-share leader in this country's booming smartphone industry. It tacked on another 3.8 million net new users during its latest quarter; there are now 28.5 million BlackBerry users out there. Research In Motion is also trading at a reasonable 17 times this year's projected profitability, and less than 15 times next year's profit target. Sure, Dell's fetching slightly lower multiples, but Research In Motion is the one actually growing in this tricky climate.
  • (NYSE: CRM  ) : If this seems like an odd replacement for Dell, the answer rests in the clouds. One of the reasons to avoid many hardware companies such as Dell -- and even a software company such as Microsoft -- is that cloud computing will make software cheaper and hardware upgrades less necessary. Server-stored applications boils down to rudimentary connectivity, and that's going to keep companies and home users on their existing devices longer. As the poster child for cloud computing, is growing quickly in the enterprise space.
  • Apple: If I have to offer up a computer maker, it won't be Hewlett-Packard (NYSE: HPQ  ) , even though I admire the job that CEO Mark Hurd has done in turning the PC and printing giant around. I would have to go back to Apple. It has succeeded where Dell has not, with the iPod. It's also where Dell would love to be, with the iPhone. And Apple is the computer maker with the proprietary operating system to make it stand out in a crowd. That distinction will carry less weight in a cloud computing tomorrow, but it's hearty enough right now to nibble away at Dell's market share.

Other headlines out of the weekly trash can:

Do you like my substitutions? Would you rather stick it out with the tossed company? Are there other stocks Rick should look at in future editions of this column? Let him have it in the comment box below. is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. Dell and Microsoft are Motley Fool Inside Value selections. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is happy to be in a home dominated by HP and Apple computers, but he did score a sweet deal on a Dell laptop that was too good to pass up several months ago. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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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 July 01, 2009, at 8:52 PM, marv08 wrote:

    Dell has to diversify, or return the money to the shareholders at some point. Launching another unsuccessful device can't make their situation any worse, and at least carries the slight possibility of a success. They do not have HPs printer and services business, they do not have Apple's iPods and iPhones (and whatever Apple launches next), all they have is products that take center stage in a never-ending price dumping war (that effects everyone except Apple until now). They have failed completely by not buying into a "second leg" at a strategically important point in time, and they are not innovators or a "butique" provider either... They have to launch yet another "me too" product and, see if it sticks. But, as with their MP3 players, TVs and PIMs before, they will likely have to compete on price... it will not be a pretty sight.

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