Here at Bauman Daily we are committed to helping our readers get through this crisis. Our experts will provide continuous updates as well as useful insights to help you survive the market decline … and to position you for even greater wealth in the weeks and months ahead. Below you’ll find the latest analysis from the world’s leading financial minds.
Remember the trade war?
Before the coronavirus, it was the U.S.-China trade war that threw the market into a tailspin.
With everything going on now, you don’t hear much about it. But this economic conflict did come at a cost. While tariffs led to higher prices for consumers, the biggest impact was shattered business confidence.
And that made companies reluctant to spend. See for yourself below:
This chart shows the change in business spending by quarter for the last couple of years.
Ever since the trade war started in 2018, business spending has fallen three quarters in a row … something we haven’t seen since the financial crisis.
While the percent change seems small — just 2%, as you can see on the chart — that’s 2% of $2.9 trillion worth of annual spending. That works out to $58 billion!
So when a phase 1 trade deal was signed in January, companies jumped on the chance to pick up where they left off.
Several business surveys showed jumps in activity. Pent-up demand was just starting to be unleashed.
But the coronavirus changed everything. Rather than just a few quarters of poor spending data, we will undoubtedly see a dramatic plunge in spending figures in the months ahead.
But there is a silver lining…
Companies can only defer investment for so long. Otherwise, today’s rapid pace of technological change will render them obsolete.
All these delays are making for an incredible rebound down the road.
And there is one technology company that finds itself at the intersection of converging trends.
Prepare for a Surge in Tech Spending With This Stock
Dell Technologies Inc. (NYSE: DELL) is a $92 billion behemoth. The company gets about half its revenue from hardware products like desktop and notebook computers (and their related accessories).
This part of this business has perked up following the work-from-home surge. My colleague Ted Bauman recently shed light on this trend.
The other half of Dell’s revenue comes from supplying technology infrastructure like computer servers and data storage — it’s this part of the business that is being held back.
Spending on tech equipment and software makes up 30% of all business spending. And corporate IT budgets will be under pressure until there is clarity around the coronavirus.
All this uncertainty has sent Dell stock lower with the rest of the market.
But the stock can be purchased at a bargain price-to-earnings ratio of just 6.5 right now.
And the bounce back will be incredible once the economy recovers and the pent-up demand is unleashed.
Dell’s CEO knows this. Michael S. Dell just bought $26 million worth of stock.
There’s even great short-term potential for profits. DELL was trading in a range for most of the past year before the sell-off, and the stock is on track to retake that range. That means near-term upside of 20% or more from current levels.
But be sure to hang on for the long term and profit from the coming business recovery.
Research Analyst, The Bauman Letter