We recently published a list of 7 Most Profitable Cheap Stocks To Invest In. In this article, we are going to take a look at where Dell Technologies (NYSE:DELL) stands against the other most profitable cheap stocks to invest in.
Insights on Small Caps, Tech, and More
Sherry Paul, Morgan Stanley Private Wealth Management managing director, joined CNBC’s “Squawk Box” on October 8, to discuss her investment strategy amidst the current market trends. Despite the Russell 2000 being down a percent, Paul believes it’s the right time to strategically add to small caps, as they are ripe for M&A and have been teased out due to their dependence on domestic consumption.
Paul emphasizes that the key to navigating this market is to be selective and strategic, recommending a broadening out of investments across sectors in the S&P, with a focus on large caps, particularly in areas such as industrials, financials, and staples. She believes that the rates going lower, combined with the productivity-enhancing cost reduction kicker, will benefit these sectors. Paul also highlights the importance of dividend yields, which can add lower volatility to a portfolio.
Regarding large-cap tech stocks, Paul remains bullish, viewing it as a theme rather than an idea. She believes that corporations will invest in software and hardware upgrades, driven by their enormous cash balances and the need to cut costs as rates go lower. This will be a boost for the sector, although it’s a longer-term game, with a time horizon of 12-24 months.
Despite the S&P 500 near record levels, Tom Lee, co-founder of Fundstrat, an independent equity research firm, remains bullish, citing a strong economic backdrop, the Fed’s decision to cut rates, and stimulus policies in China as tailwinds that will support the market. He believes that the economy is resilient and that the Fed’s easing will lead to a continued bull market, with the S&P 500 potentially reaching 5700 or higher by the end of the year.
Lee acknowledges that there are some headwinds, including the looming election and rising oil prices, but believes that they will be offset by the tailwinds. He also notes that small caps, which have been the weakest area of the market since the Fed hike, are due for a rebound.
As the market continues to navigate through economic trends and global challenges, expert insights help provide valuable insights to make informed investment decisions.
Our Methodology
To compile our list of the 7 most profitable cheap stocks to invest in, we used the Finviz and Yahoo stock screeners to compile an initial list of the 40 largest companies by market cap that are trading at a forward P/E ratio of under 20 as of October 7. From that list, we narrowed our choices to 7 stocks with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of IT experts discussing the latest network security trends over a laptop screen.
Dell Technologies (NYSE:DELL)
Number of Hedge Fund Holders: 88
Forward P/E Ratio as of October 7: 15.31
TTM Net Income: $3.97 Billion
5-Year Net Income CAGR: 9.41%
Dell Technologies (NYSE:DELL) is a major player in the global technology sector, providing computing hardware, software, and IT services.
Dell Technologies (NYSE:DELL) is focusing on AI deployment for communications service providers (CSPs) by bringing together its AI expertise, infrastructure, and services. The need for AI adoption in the telecommunications industry is evident, with a recent MeriTalk study finding that 48% of telecom executives see AI as the industry’s most transformative technology in the next five years. The Dell AI for Telecom program addresses these challenges by providing CSPs with on-premises AI solutions that can enhance network performance, improve customer service, and provide greater value.
Dell Technologies (NYSE:DELL) is collaborating with NVIDIA to transform telecom networks with AI solutions. The two companies are co-creating and validating telecom AI solutions for CSPs. These solutions use Dell PowerEdge servers, NVIDIA GPUs, and enterprise-grade AI software to help CSPs use AI to enhance customer care, improve network maintenance, and automate call center scripts and customer care operations.
Dell Technologies (NYSE:DELL) and NVIDIA are also working together to facilitate AI deployments with the PowerEdge XR8000 server, which is now available with NVIDIA L4 Tensor Core GPUs. This server is designed for telecom and edge use cases and features a compact, modular design that simplifies deployment and maintenance.
Furthermore, Dell Technologies (NYSE:DELL) is helping CSPs design and deploy GPU-as-a-Service (GPUaaS) offerings, which allows them to provide on-demand NVIDIA GPU capacity for enterprise customers. This enables enterprises to scale AI deployments and resources as needed while maintaining data ownership and governance.
Dell Technologies (NYSE:DELL) is already partnering with CSPs in the Dell Telecom Open Ecosystem Labs to develop AI solutions with Dell AI Factory infrastructure and ecosystem partners to enhance customer experiences and improve network performance. For example, Lintasarta, an Indonesian information and communication technology company, is using GPU Merdeka, a GPUaaS, to provide AI infrastructure, including NVIDIA GPUs with Dell PowerEdge XE9680 servers.
Dell Technologies’ (NYSE:DELL) AI growth is supported by its core server business, which has demonstrated a growing backlog that reached $3.8 billion in Q2. Management emphasized that it recorded $3.2 billion in AI server orders “driven by tier-2 CSPs.” The company’s ability to transition its current enterprise customers to its AI-optimized portfolio is still in the early stages, and management is confident that the growing adoption will result in favorable outcomes for the company.
Dell Technologies’ (NYSE:DELL) diversified ISG portfolio which includes products in its storage, server, and networking segments, has continued to gain market share and has also made progress with tier-2 cloud service providers.
Dell Technologies’ (NYSE:DELL) margins are expected to remain solid, and the market seems increasingly confident in the company’s capabilities to overcome its past growth rates. The stock’s forward P/E ratio of 15.31 indicates a 36.35% discount compared to the sector median of 24.06. Analysts expect Dell Technologies (NYSE:DELL) to increase its earnings by 9.73% this year, and have a a consensus Buy rating at a target price of $146.58, which implies a 20.08% increase from its current levels. For the twelve months ending July 31, Dell Technologies’ (NYSE:DELL) net income was $3.97 billion, a 108.61% increase year-over-year.
Overall DELL ranks 4th on our list of most profitable cheap stocks to invest in. While we acknowledge the potential of DELL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DELL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
