Steer clear of Dell

Dell (DELL) computers were a staple of the late 1990s and early 2000s. Michael Dell's business model transformed the company into a technology sector powerhouse by providing consumers with the best value or "bang for the buck". However, Dell struggled without its founder as its revenue and earnings continue to decline against fierce competition from HP, Toshiba, Sony and Acer. Despite Michael Dell's return to help revive the company, Dell won't be a good investment for some time.

Recently, Dell has been labeled as deliquent in its regulatory firings. Generally speaking, this type of action serves as a red flag, warning investors that more tough times are ahead in the near future. Another newsworthy item involves Dell's recent strategic alliance with Wal-Mart. Two low-cost providers teaming up seems like a well-designed match, but this partnership may actually hurt Dell.

Wal-Mart is known for poor customer service, something Dell already struggles with. By selling products in Wal-Mart, Dell expects consumers to be knowledgable enough not to need help. The problem here lies with Wal-Mart's target market, low and middle-class consumers who do not possess the computer skills and know-how required to purchase PCs or other computer equipment on their own. Additionally, Dell's perception and brand value will decline significantly due to this alliance. Higher-end consumers may link the company with lower-class America, discouraging high-end product purchasing.

A better play would be HP (HPQ), a company that continues to improve marketshare in the PC market and seems to have positioned itself well for the laptop battle. HP's valuation is still undervalued with Price/Sales ratio, Price/Book ratio, Price/Free Cash Flow ratio, and P/E over Long-Term growth all below the industry and sector average. Considered a buy according to most wall street analysts, HP was recently named to TheStreet.com's 5 best value plays.