Has This Computing Giant Bottomed Out?

Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Hewlett-Packard (NYSE: HPQ) has been discussed in the investment world a lot recently due to its low trading price and recent plunge in the market due to the Autonomy debacle. But HP has strong growth prospects on the back of its close relationship with Microsoft, its increasing focus on innovative enterprise services and products, its new PC device product line and global brand familiarity. HP's key competitor in the PC device sector is Dell (NASDAQ: DELL)Oracle (NYSE: ORCL) is HP's competition in the enterprise sector. Intel (NASDAQ: INTC) and Microsoft (NASDAQ: MSFT) should serve as proponents for HP's growth in the future. Right now is an opportune entry point for investors to capitalize on this stock before it begins to rally in 2013.

Performance

HP's forward price is projected to be 3.4 times earnings, 0.20 times sales, and 1.09 times its book value. Sales have increased only 2.9% over the past five years. But, the new Windows OS and HP products line has the potential to drive sales significantly over the next five years. HP's 5.08% float short and 3.3 short ratio are the highest among these firms. This could present an opportunity for a short squeeze as 2012 approaches. HP's stock is down 50.8% in the past year and down 15.4% over the past month, but has increased around 6.4% since its last earnings release.

What's Next?

In late November, HP introduced the HP ProLiant SL4500, the first server specifically built for Big Data applications and analytics. HP currently has the only server built to optimize Big Data operations, this is very promising for the tech firm; future outlook. The ability and the foresight to be the first to get this type of product out in a high growth and high revenue industry like this bodes well for HP's long-term outlook. Compared to Dell servers, HP's new server used 50% less space , 63% fewer cables, 61% less power and its costs are 31% lower. Big data is the future mainstay of major conglomerates; HP's ability to get a head start in this sector should be extremely appealing for aggressive investors.

Dell will begin to transition toward making acquisitions that will add tools that complement its personal computers and servers, founder Michael Dell said. The company is trying to transform itself from a PC supplier into a supplier of higher cost servers, business software, network and storage equipment.

Oracle has created a solid growth channel for itself through software licenses. Oracle expects this segment to rise 5% in 2013. I expect cloud computing to be a core driver of Oracle's long-term growth.

Intel recently unveiled a $6 billion debt offering to buy back more shares of stock. Intel will pay less than 2.5% interest on the bonds it plans to issue. The company will also receive a tax shield from the interest payments. 

Microsoft recently announced plans to make the Surface available at additional retailers as soon as mid-December. In addition, the company announced the extension of its holiday stores, including the transition of several of the stores into permanent Microsoft retail outlets.

HP recently unveiled its new lineup of business and consumer PC devices that work with Windows 8. This is another reason to invest in HP in the near-term. The new lineup of HP products includes touchscreen desktops, notebooks, business tablets, hybrid devices and Ultrabooks. HP stock can realize a significant uptick with the success of Windows 8. This new OS can help revive the struggling HP in the near-term. HP's diverse array of products can be popular with enterprises, independent business professionals and the average consumer as well.

The new products have HD displays alongside lightweight and sleek. It's reasonable for investors and shareholders to expect HP to be the primary beneficiary of a successful Windows 8 launch. The new OS, upgraded platforms by Intel and new designs by HP can help HP lead the industry in PC sales volumes during 2013. This could also create the opportunity for a successful smartphone device launch for HP in the near-term as well. Windows 8 can be the strong shot in the arm that HP has been yearning for throughout the past few years as PC device sales have declined significantly.

Another promising development coming to light in late November was the new multi-year contract between HP and the State of Idaho Department of Education. HP ProNotebooks and HP services will be the primary platforms to create a mobile computing environment where students can get one-on-one computing solutions. These types of agreements can bring HP to the forefront of leading tech firms in the US. Interested investors can initiate a position in the long-term under the assumption that this agreement may create additional opportunities to partner with other states' boards of education or universities. If more classrooms become focused on going digital in the future, HP could be in the best position to provide the hardware, network and integration services to complete these large scale initiatives.

HP has already found its first global customer for its business tablet, the HP ElitePad 900. Emirates Airlines will utilize the tablet as the primary platform for the airlines new Knowledge-driven Inflight Service application. Emirates Airlines' KIS application is an in-flight communication and CRM system. The airline chose HP's tablet primarily due to its light weight and sleek design. This tablet will most likely be available to American consumers during the first two months of 2013. This recent development underscores the potential HP has to attract large enterprise clients and conglomerates in the US and overseas as well. The new product line up from HP powered by Microsoft's Windows 8 OS could lead to the best year HP has had in years during 2013.

It's important for investors to understand that Fitch won't be downgrading HP over the Autonomy impairment charges. The market certainly reacted but Fitch's current rating for HP already had the potential for significant impairment charges on the back of overpaying for the Autonomy acquisition regardless of the accusations of foul play. Fitch noted HP's poor history of recent acquisitions but expressed confidence in Whitman's commitment to a long term resurgence and resistance for near-term acquisitions. Fitch also expressed confidence in HP's ability to pay down half its near-term debt in 2013. Fitch's stable outlook should give interested investors confidence that HP's stock isn't likely to take another plunge in the near future.

Conclusion

The real question for investors to consider is whether or not HP bottomed out? The best has yet to come for HP as it continues to transition its focus on reducing costs and bolstering its cloud and enterprise portfolio. HP stock could rally in 2013 on the back of new offerings from Microsoft and Intel as well. A revitalized Windows 8 could be the leading OS above Google (GOOG) and Apple's (AAPL) offerings. HP's stock can rebound as it realizes improved PC device sales and continues to find new large-scale project agreements and initiative with domestic and international clients. Current shareholder should weather the storm and interested investors should consider a near-term investment to maximize potential for long-term capital appreciation beginning in 2013.


StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel, Microsoft, and Oracle. Motley Fool newsletter services recommend Intel and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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