Recap of Saturday, March 8:Dell and Pfizer

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Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:

David Asman: Bruce Upbin.  You spent a little time with the Home Depot (HD) folks, what do you think?

Bruce Upbin, senior editor:  I just got back from Atlanta, where I talked to Home Depot’s CEO, Bob Nardelli, and his CFO.  Here’s a company that has taken more than its share of knocks in the last year, stock’s down by half.  But they’re doing the right things to bring back the company to its former glory.

David Asman: But there’s a cost to that, right?  They’re putting more money into it?

Bruce Upbin: Yes.  $4 billion.  They’re spending 50 percent more than they did last year and the year before that on fixing up old stores and moving departments around.

David Asman: Dennis, do you think it’s going to pay off?

Dennis Kneale, managing editor: Well, you know, Bruce knows an awful lot about another company that’s a rival to Home Depot, and I think it’s a better stock, and that’s Lowe’s (LOW).  It’s less recognized, gets less respect, and yet they’re doing a better job.  Even Bruce would think they’re doing a better job in their stores.

Bruce Upbin: Lowe’s is better than Home Depot, but Home Depot is catching up.

David Asman: All right.  Victoria Murphy, what about these Blackberries?  I see everyone one the subway playing with them.  What do you think about the company that makes them?

Victoria Murphy, senior reporter: I don’t think very highly of it right now, because they’ve been found guilty of patent infringement.  And it’s kind of this ongoing lawsuit with this patent house in Virginia.

David Asman: And the company is RIM, by the way.  Research In Motion (RIMM).

Victoria Murphy: Yes, and I think Wall Street just hasn’t awoken to how bad this could get for RIM.  The patent house is asking for 18 percent royalties on RIM’s gross revenue, which is huge.  As it is RIM doesn’t make money.

David Asman: So Matt, should I throw away my Blackberry if I have one?

Matt Schifrin, senior editor: Absolutely not.  I think that Victoria has some short-term thinking here.  These things are on fire.  They’re a must have for top executives; their subscriber growth is on fire.

Victoria Murphy: Well, they are on fire, but you can now buy one from Palm (PALM) and eventually Microsoft (MSFT).  So, I think RIM doesn’t stand a chance in this market with those kinds of heavyweights and a nasty lawsuit.

David Asman: Let’s move on to another tech-related stock, Dennis Kneale, Cisco Systems?

Dennis Kneale:  It’s one of my favorite stocks.  We had some top Cisco (CSCO) people in recently, including John Chambers.  Now they couldn’t tell us any secrets, of course, that would be wrong.  But after listening, I’ve got to tell you that this company is worth buying.  Just a couple quick numbers:  Three years ago, this stock was at $80, now it’s at $13; two years ago, the company lost $1 billion dollars, but last year they earned almost $2 billion; in the first quarter of the current year they earned almost $1 billion, half of what they earned a year ago.  They’ve got nine growth markets, it’s a beaten down stock.  When tech turns around, these guys are going to benefit.

David Asman: Wait a minute; three years ago Sun Microsystems (SUNW) was at 120, now it’s at 3.  Every stock has gone down in the tech sector, what do you think of Cisco?

Victoria Murphy: I think Cisco is obviously a survivor, but I think that any upside in the stock is already baked in, because every institutional investor who has to put some of their money in tech, goes into Cisco.  So I think it’s not a good stock for short-term investors.

David Asman: Matt, you’ve got a bead on what Warren Buffet is thinking these days.

Matt Schifrin: Warren Buffet came out on Monday saying that he hates stocks and loves junk bonds.  We have a bond guru at Forbes, and he likes two junk bonds that are easily accessible to individual investors.  El Paso Capital Trust (EPPRC) and Northwestern Corp. (NOR_pd).

David Asman: Junk bonds means there is a risk here, right?

Matt Schifrin: Absolutely a risk, but you’re getting paid over 13 percent for these trust preferreds.

Makers & Breakers

Dell Computer (DELL)

Ken Schapiro, president of Condor Capital Management: MAKER

Dell is the number 2 computer maker in the industry, behind Hewlett-Packard.  Dell is the most efficient, despite a really terrible technology area that we are in right now, with sales probably pretty flat in the PC area; Dell has been showing 20 percent gains.  The company is selling at 26 times next year’s numbers, a little bit rich, but I think worth the price at these levels.

Jim Michaels, editorial vice president: BREAKER

I agree with everything Ken says about the company.  I love the company, but I hate the stock.  If you take off the options and do honest accounting, their earnings are more like 60 cents a share this year.  So it’s 40 times earnings.  I don’t believe these 15-20 percent earnings gains ad infinitum.  That’s what got us into the tech stock bubble.  If I owned the stock at 50 cents a share like some people I know do, I wouldn’t sell it, but I wouldn’t buy it at this price.

Dennis Kneale, managing editor: MAKER

I like this stock a lot.  These guys are the leader.  They’re the most efficient.  And this idea of “if you take the options away,” but you don’t in the way you report the numbers, and people invest based on the numbers.  Dell is gaining in a down market.  When this market comes back, Dell will be poised to truly benefit.

Pfizer (PFE)

Ken Schapiro: MAKER

They’re the largest drug producer in the world, once the merger with Pharmacia goes through.  They have an unbelievable drug pipeline coming up.  In the next five years they have 15 new drugs coming out.  The stock’s selling at a market multiple, it’s growing at 16-20 percent.  They have a lot of efficiencies to be gained from the merger coming about.

Dennis Kneale: MAKER

I take Lipitor.  $8.6 billion in sales, they are the best seller around the world.  Incredible company.  This industry, the whole industry is the fastest growing industry in the next decade.  This is a great stock.

Jim Michaels: MAKER

It’s down to 16 times earnings; it’s a sure grower.  I don’t think they can maintain their present profit margins, no drug company can.  But it’s a slow, steady earner.  At 6 times earnings, I would buy.

David Asman: I have to be the devil’s advocate here.  There was an article in the Wall Street Journal on Friday about how Pfizer may have some trouble because some people say the Viagra drug increases the risk of AIDS.

Ken Schapiro: Well, I can’t really comment on that.

Jim Michaels: I can comment on that.  What the article says is that it works so well that people are having sex too often.  And that’s what increases the chance of AIDS.