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HPQ and the Case of the Missing Bad Mouth

Computer hardware related stocks starting to get jiggy. HDDs have done ok, but HPQ and Intel have a long way to go before becoming fairly priced. Reading Digitimes reveals Asian orders for PCs picking up, and new innovative products from the major vendors in tablets, hybrids, and windows 8 based notebooks are gaining critical acclaim and even some reasonable orders.

Don’t expect, however, to hear the positive case for computer hardware related stocks on Bubblevision. The space is near universally hated and ignored, even by the vast majority of wall street analysts who follow the space. Except for Apple. All the talking heads and anals love Apple.

Last year the talking heads ignored Seagate, the best performing tech stock in the S&P500. They had their short case or their “sell, sell, sell” call. And they never acknowledged the stock’s outstanding performance up 85%.

Now the same thing is happening with Hewlett Packard. It gets a dishonest hedgie short pitch on bubblevision , or a “sell-sell-sell” from a leading talking head, or a ridiculous 4.5 p/e, $15 price target by a wirehouse dullard. But once the stock starts to recover they disappear. They go silent as the dishonesty gets revealed (there is no huge net debt and rollover problem) or the stock starts to get more fairly valued. Even with HP’s nascent turnaround and compelling valuation, it still only has ONE SINGLE BUY RECOMMENDATION from first or second tier Wall Street shops.

Now I cant guarantee that HP will reach my published targets of $25-30 per share. There is a lot of work that needs to be accomplished by HP to get this once well run tech conglomerate humming once again. But if they do, the stock will be up huge from even these levels. Execution is very important here as the industry navigates a significant, fundamental change in technology and information consumption. And after they improve execution and restore margins and free cash flow levels, the knuckleheads on the Board of Directors need to dramatically improve their capital allocation process, which has been an unmitigated disaster.

The company needs to accept its slow growth rate, even if only from size, and return maximum cash to owners via large dividends. Maintain the franchise, slowly grow the business in line with GDP of 3-4%, and generate oodles of free cash flow that get paid back to shareholders. They can’t generate shareholder value from stupid acquisitions or ill timed repurchases. And the Board has accomplished $10’s of billions of these. Maintaining the franchise and printing shareholders cash will maximize the market value of HPQ shares.

HPQ by the way is the best performing tech stock in the S&P500 ytd, up around 43%. And, its still stupidly cheap at 6x’s cash earnings per share. But don’t expect to hear much from the shorts, the wall street analysts, or the talking heads on HPQ for the rest of the year. They disparaged it the last time they mentioned it, and they told everyone to sell or short it at $15. On a daily basis. Now they should be gone forever. Good riddance.

At time of publication, Robert was net long STX, INTC, and HPQ.


  1. Bobsulke says:

    totally agree with HPQ comments..Reminds me of Boeing after it was worst performer & then turned into a mkt darling..My target for HPQ is $27/$28 this yr & $38/$40 in 2014 based on $3.80 earnings in 2014 &  mere 10 multiple…

  2. Steve Mclean says:

    great article, about time someone called the nay sayers on HPQ.

  3. Neal says:

    You are correct HPQ is on it’s way back UP, after all if it was not for HP then all these mobile device would have no Servers to connect too, and you iPad would just become an expensive Photo Frame 

  4. Anonymous says:

    LMFAO!  You guys all went long on this dawg so you gotta pump-and-dump thing going on?  They missed the boat on tablets and they missed the boat on smartphones.  Sure, go long while it’s in it’s death spiral and have fun with that!  Stupid is as stupid does.

    • Chris says:

      what a clown. you are as clueless as you are proud. ‘death spiral’? really? hp is only the largest tech company in the world and number 1 or 2 in every market they are in. i guess you may know a little bit about stupidity firsthand, but why don’t you take your oversimplified idiotic drivel and go lick yourself, bigdawg?

  5. Anonymous says:

    I knew it was just a matter of time, although this was sooner than I thought! HPQ down 5% today while the rest of the DOW was up 89 points. Couple that with a Goldman Sachs downgrade to ‘”sell” and I get to say “I told you so”. Watch asthe more intelligent analysts start to downgrade. This security is on the slippery slope!

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