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Friday, September 15, 2006

What Do Dell, Juniper, JDS Uniphase, Broadcom, And EMC Have In Common?


Let's get the answer right up front. All of these stocks are rated "Five Stars" at Morningstar, the widely used mutual fund and stock research service.

Broadcom, which Morningstar says has a "fair market" value of $47, trades at under $29. The Morningstar "fair market" value for Dell is $39. Dell changes hands at just above $21. EMC's "fair market" is $19. The stock trades at $11.43. JDSU has a "fair market" value of $3.50. It trades at $2.23. Juniper's" fair market" value in Morningstar is $20. It trades at $15.42.

Several of these stocks are embroiled in the stock options backdating scandal. They could be delisted. Will they be? Maybe not, but it is a risk. And, if it happened, it would be catastophic for the company the had to move to the pink sheets. Institutions would sell in droves.

The second, and perhaps more important issue is that some of these companies are broken. Dell faces a slowing PC market, customer service problems, and growing competition from Apple, Acer, and others. Will it recover? Maybe. But, it will never growth the way it has for the last decade.

Juniper competes with Cisco. Could they take share from Cisco in the carrier router market? Maybe. But, with Cisco's size, balance sheet, and sales force, it is clearly not a safe bet.

EMC is the king of the digital storage business. But, its earnings are slowing and it competes in a market that includes IBM and Hitachi.

Morningstar gives Five Stars to companies that trade well below their "fair value". It's their system their definition. But, it would seem that the risks in some of these stocks should get them a "not rated" for now.

Douglas A. McIntrye can be reached at He does not own securities in companies that he writes about.

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