Investors have driven shares in HP down over 41% this last year, and down over 71% in a five year period. The turnaround plan under Meg Whitman seems to be going nowhere, and investors are concerned that a trend toward tablets will destroy personal computer sales. We are seeing this same concern drive down shares in both Intel and Microsoft as well recently.
There are, however, some things to love about Hewlett Packard:
1) The company is expected to earn over $7 Billion in profits next year. With a market capitalization currently of about $28 Billion, that represents a multiple of only 4 times! Paying four times earnings for a company represents an earnings yield on your investment of 25%! Not bad for a brand-name technology titan that definitely has the balance sheet to stay competitive for some time to come.
2) The company recognizes that it is facing problems, is not in denial, and is actively engaging in cost-cutting and turnaround efforts.
3) The company pays a dividend of 3.65%. In today's low-rate environment a dividend over 3% represents a reasonable return on your savings, and since the company is currently trading at a low multiple to next year's earnings, there is up-side potential in the stock as well.
4) The company is #1 or #2 in a wide number of product markets. Though many think of HP as primarily a PC manufacturer, it has leading positions in servers, storage, networking, software, systems management, and printers as well. Essentially, the company began diversification efforts long-ago, and they have paid-off. As PC sales decline, other units of the company should be able to pick up the slack.
Of course, no technology investment is without a higher degree of risk, but HP is definitely worth a look for the Intelligent Investor.
Cheers, and happy investing!
Matthew.
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