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Trading Dell Ahead of Earnings

Dell is scheduled to report its quarterly earnings after Tuesday's closing bell, but is its stock worth a buy?

UBS analyst Maynard Um takes a bullish view on the technology name . On Monday, Um raised his earnings-per-share estimates and price target on the stock.

"If you look historically, the stock trades on gross margins and if you look at the component pricing environment, it's better than I think most have expected," Um explained on Tuesday's "Fast Money Halftime Report." "If we assume gross margins just flat from last quarter that would add an incremental nickel on top of the earnings numbers I just took up. An incremental nickel to my earnings all else equal.

"So for the extent that I think the gross margins are better, I think the risk to earnings guidance is up and I think that would wind up being a positive for the stock," Um said.

It is true, though, that transaction-based companies, like Dell, EMC and NetApp have historically had a high correlation to gross domestic product. So these kinds of companies would be more greatly impacted by an economic slowdown than, say, Apple or IBM , Um said. Still, the transaction-based names will likely have more upside during any upswings, he argued, because PCs are getting old while storage and content continue to grow.

Although weak macro has traditionally led to Dell underperforming, Um still thinks there's a long-term story here. Um thinks Dell is undergoing a "quiet transformation" away from being a personal computers company to more of a solutions-based company. Already, 50 percent of its gross profits are from server stores and services, he noted.

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Trader disclosure: On August 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (XOM); Terranova owns (CVI); Terranova owns (CAT); Terranova owns (OXY); Terranova owns (AAPL); Terranova owns (DAR); Terranova owns (FCX); Terranova owns (CACI); Terranova owns (ARUN); Terranova owns (ORCL); Terranova owns (EMC); Terranova owns (NCR); Terranova owns (VMW); Terranova owns (IBM); Terranova owns (AMZN); Terranova owns (LULU); Terranova owns (LTD); Terranova owns (WFM); Terranova owns (WFC); Terranova owns (JPM); Terranova owns (AXP); Terranova owns (FXA); Terranova owns (VRTS); Terranova owns (LQD); Terranova is Chief Market Strategist of Virtus Investment Partners, LTD

Brian Kelly
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For Maynard Um
UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of NetApp, Apple, Dell, EMC, HPQ common equity securities as of last month`s end.

CNBC.com with wires.