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Dell's Dwindling U.S. Sales Weigh on Funds

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As a component of the S&P 500, the Nasdaq Composite, and other equity indices, the sell off in computer maker Dell (DELL) could impact some large-cap growth and tech-oriented mutual funds with large stakes in the stock.

The computer giant’s second-quarter report indicated that deep discounting in personal-computer prices failed to kindle sales. Dell’s stock lost as much as $3.33, or 8.4% on the Nasdaq earlier today, causing the index to tumble.

Megan Graham-Hackett, computer hardware equity analyst at Standard & Poor’s, is reiterating her strong buy recommendation on Dell stock despite yesterday’s results. “Second quarter EPS of $0.38 versus $0.31 met our estimate, but aggressive pricing in desktops caused revenues, up 15%, to be 1.2% shy of our model,” she said.

While sales fell short on weak consumer mix and slower demand from the federal government, strength in key areas such as services and storage buoyed gross margin to 18.6%, 10 basis points above Standard & Poor’s estimate. “Thus, while Dell sees third quarter revenues of $14.1-$14.5 billion, compared with the $14.5 billion Standard & Poor’s had projected, its EPS guidance was in line with $0.40 estimates,” Graham-Hackett added.

Current fiscal year 2006 estimates remain at $1.59 per share, and Standard & Poor’s 12-month target price is $49. The stock is currently trading at $36.51, down $3.07.

Fund Advisor screened for funds with a significant portion of their assets invested in Dell that could be impacted in the short term. The following portfolios had at least a 5.0% stake in the stock as of June 30, 2005.

Fund/ETF Percentage of Assets Invested In Dell (as of 6/30/05)
T Rowe Price Global Technology Fund (PRGTX)


MassMutual Select Aggressive Growth/A (MMAAX)


Constellation Sands Capital Select Growth/II (PTSGX)


Smith Barney Technology Fund/A (SBTAX)


T Rowe Price Science & Technology Fund/Adv (PASTX)


GMO Tr Growth Fund/III (GMOGX)


MassMutual Select Growth Equity/A (MGQAX)


GMO Tr US Quality Equity/III (GQETX)


Contact Bob Keane with questions or comments at: [email protected].


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