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Suddenly, It Seems As If All Hands Are On Dec

Inside Wall Street


Few pros are ever neutral on Digital Equipment, one of the most volatile technology issues around. "You either hate it or love it, just like a cult stock," says money manager Tony Hitschler. The stock of this major minicomputer maker hit a peak of 190 in 1987, just before the October crash. Since then, it has been on the skids, sliding as low as 49 in mid-December.

But a recent wave of buying by some big investors has boosted DEC more than 10 points, to 60, in just three weeks. "This time, we believe it's all-go," says Hitschler, president of Brandywine Asset Management, which oversees $1.4 billion. He thinks the stock will run as high as 90 over the next 12 months.

This new bullishness goes beyond the recent developments at the company (page 38). DEC has announced that it will soon introduce a high-speed Alpha computer chip and that it has signed licensing and manufacturing alliances with Microsoft and Novell.

"Even without Alpha, DEC's investment picture is rapidly changing," says Hitschler. "We've been buying heavily because we now see Digital as a value stock--greatly underpriced based on its book value, cash on the balance sheet, and most other value measures." He notes that in the past five years, the stock has moved from overvalued to ridiculously undervalued.

Hitschler is impressed by the company's $1.7 billion in cash and its debt of just $44 million. On a price-to-cash ratio, the stock is selling at 8 1/2, vs. 15 for the Standard & Poor's 500-stock index. As for book value, DEC is selling at one times book of $61.50 a share, vs. the S&P 500's three times, he notes.

SOFTER SPOT. "We see very little risk at its current price," says this pro. Plus, DEC is turning more and more into a competitive software company, he notes. Its hardware operations, which have been losing money, account for 50% of sales, which is expected to drop to 40% by 1993, says Hitschler. Software and services, which are making money, are expected to account for 50% of sales by '93, up from 40%, and "on even wider margins because of Digital's new products," he adds. In addition to the Alpha chip, DEC's PATHWORKS networking software is fueling his enthusiasm.

DEC is expected to post a loss for the year ending June 30, 1992, vs. earnings of $3.17 in fiscal 1991. But analyst Marc Schulman of UBS Securities figures DEC will earn a hefty $5 a share in fiscal 1993. "Judging by the recent upward move in the stock," says Schulman, it appears that investors are beginning to take notice of this "former outcast."GENE G. MARCIAL

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