The stock market values Dell Computer at more than Ford and General Motors combined.
Now that Chrysler has become a German company, more or less, that makes Dell, in Wall Street’s current estimation, more valuable than the entire U.S. auto industry.
Indeed, you can add American Airlines, United Airlines and Federal Express to the balance — and, oh, what the heck, throw in the New York Times Company, too — and still DELL outweighs them all.
(To see this graphically, click SCALE on the menu bar above. Not all the companies I’ve mentioned show up on SCALE’s prepackaged check-list, but you can add them. Or — easier — just take my word for it.)
Is it possible this valuation makes sense?
I am short a few shares of Dell — but very few, because I generally lose a lot of money shorting stocks and because Michael Dell is a lot smarter than I am. (Not that I’ve noticed him buying shares at this price.)
Dell is of course just one of hundreds of examples of how Wall Street today values exciting young companies — and Dell is way far from being the youngest or most exuberantly valued. It is one of the most solid of the techs, with more than $20 billion in annual sales, well over $1 billion in profits, and a trailing-year’s price/earnings ratio of barely 80 or so. (Normally, one would consider 80 phenomenally high. But Yahoo, which also has earnings, and already has 100 million users, sells at 1,800 times trailing-year’s earnings. And tiny upstarts like Amazon, of course, have no earnings. I am short a few shares of these, also.)
Compare Dell with Procter & Gamble. Both sell for just above $50 a share; but because Dell has nearly twice as many shares outstanding, investors are valuing the company at nearly twice as much (2.5 billion fifty-dollar bills instead of a mere 1.25 billion of them).
I’m just old and boring enough to think that Procter & Gamble here — down dramatically after announcing that a hoped for 9% profit jump would more likely be an 11% profit decline — just might represent an opportunity.
But I’m really an amateur at this stuff compared to some folks who know who really do their homework, and do it for a living.
I had lunch Sunday with just such a friend. He’s a modest but highly successful private money manager whose photo you may have seen over the years in Barron’s. He and his partners take just a few positions and wait. Although past performance is no guarantee of future results, after their past performance they don’t need any future results.
But I do, so I asked my friend what he liked.
He gave me five stocks that he’s been buying around these levels. For those of you who prefer buying-and-holding individual stocks rather than mutual funds — thereby to save the annual expenses and control the tax consequences — you might consider adding these to your portfolio. I did.
The first two, Yankee and Blyth, YCC and BTH, make candles.
No, I am not kidding, and neither was he. Candles, he says, are hot. People buy based on appearance and scent, not price, and they are buying in smartly sharper quantities each year. It’s a decor thing. My friend likes vanilla in his office and “fir” at home. (And this is a straight friend, no less.)
Now, you may be quick to say, who could possibly want to make money in candles when you can lose it on, say, candles.com? Losing money the new way is so much more exciting — and for now, at least, so much more profitable — than making it the old-fashioned way.
But for starters, both of these stocks — and the other three as well — are selling near the bottom of their 52-week ranges, which in the days before “momentum investing” would have made them interesting because they are cheap. (Now, the interesting stock is the one that’s just tripled, and thus has momentum.) And there are a lot of other reasons my friend likes these five stocks, about which he waxes eloquent.
The other three are General Dynamics, Jones Apparel, and US Bancorp — GD, JNY and USB.
My guess is that if you put a bit of money into these five . . . perhaps a quarter of it in the candle-makers and a quarter in each of the other three . . . and if you waited a few years . . . you’d have more money than if you bought five of today’s high-flying new economy stocks. You know: the kind that money managers today say are “phenomenally expensive” but buy anyway because, they say, “you just have to own them.”
PS – I have been wrong before.
PPS – The advantage of owning the stocks directly — creating, in effect, your own Personal Fund — is that if one tanked, you’d sell it for a tax loss (possibly buying it back after 31 days, if you think at this lower price it has become an even better buy). And if one tripled, you might use it, not cash, to fund your charitable giving (assuming you had held it at least a year — and believe me, no one of these five is likely to triple in under a year). I’m still a great believer in no-load, low expense mutual funds. But especially in a taxable account, there’s a strong case to be made for owning stocks directly — unless you’re cursed with a gambler’s addictive personality.
PPPS – I just checked, and there actually is a candles.com. I guess I shouldn’t be surprised. What’s more, it seems to be a very nice site, from a company called Wick’s End — and for all I know it’s making money, not losing it. But I do know this: for every single candle they sell at candles.com, somebody has to make a candle. So at least some of the profit to be earned in candles may ultimately come from making them, not dot-comming them.
Quote of the Day
The people who sustain the worst losses are usually the ones who overreach. And it's not necessary: steady, moderate gains will get you where you want to go.~John Train
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