Are HP, Intel Dead in the Water?

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

If you are looking to buy into ignored stocks, I recommend considering firms with exposure to PCs. The desktop, regardless of tablet and smartphone penetration, won't be completely replaced. If anything, I see it making a long-term comeback due to its practicality. Now the goal is to buy into stocks that have already factored in the worst and are now positioned to gain from any positive catalyst--any. Below, I review two companies that have fallen from poor PC trends.

Why Hewlett-Packard (NYSE: HPQ) Is Regarded as Junk

Hewlett-Packard, commonly known as "HP," manufactures printers and hardware for personal computers. It had been the leading manufacturer of personal computers until it was overtaken by the Chinese-based Lenovo, the maker of "ThinkPad" PCs. The decline that this tech giant has experienced in the past two years has been attributed to several factors.

One of these factors is the firing of the company’s CEO Mark Hurd. While he was criticized for poor professionalism with employees, his contribution has been largely ignored. Hurd was famous for implementing policies that increased the company’s profitability, such as reducing workforce and launching new products in a timely fashion. It is said that his leadership was responsible for a 130% rise between 2005 and 2010. In 2006, HP led in laptop sales while in 2007 it led in desktop sales. Despite these achievements, the board at HP kicked Hurd out in 2010. The reason cited for this dismissal was that he had an unprofessional relationship with a female client.

HP has had quite some problems with CEOs since then, and the current one has yet to prove her worth to the board. Business has not been that good, largely because demand for personal computers dropped with the growing demand for smartphones and tablets. The introduction of Windows 8 is a great opportunity for HP to make more sales and probably get back on its feet. But if Microsoft's poor stock returns are of any indication, the new operating system has not been too successful. 

The company is also planning to reduce the number of employees by 27,000 by the end of the fiscal year 2014. The move is aimed at reducing expenses for the already weak company. This can be seen beyond just PCs. HP’s printer business, for example, has also been on the decline. The new CEO attributed this decline to Facebook. She said that since people can upload pictures and share them on Facebook, the need for printing photos has declined. HP reported that revenues in the printer business declined by 10%. HP has been selling printers at a low price while selling ink at a very high price. This is one thing that has made many people shift away from printing. HP is trying out new markets and selling ink at a lower price while raising the price of printers. In the third quarter of 2012, the company reported the biggest loss since it was founded, a loss of $8.9 billion.

Buy Intel (NASDAQ: INTC) Despite Woes

Intel is a global company that manufactures semiconductors. It has made some of the most vital technologies behind computers and laptops. Intel is now getting involved in an “open source cloud platform” along with Dell and a Chinese tech company to target growing Chinese data demand. Like HP and Microsoft, the biggest challenge Intel has been facing is that of reduced demand for personal computers. 

Just in late 2012, Intel was overtaken by Qualcomm (NASDAQ: QCOM) in market share. Qualcomm had a market share of $105 billion while Intel’s share was $103.3 billion. Intel has every reason to be worried about Qualcomm, because the latter is not only performing well presently, but it is destined for huge gains in the future. In the last quarter, Qualcomm reported that it had made $4.87 billion in revenues, which was an 18% increase. The company also reported that it had made income worth $1.27 billion. There are, however, reasons to still stick with Intel and hope for the best. Intel is offering a dividend yield of 4.2%. The dividends have continually gained value since 2010. The company has a low debt to equity ratio and under-appreciated momentum coming from ultraboooks in 2013.

And at a respective 10x and 10.2x past and forward earnings, the stock is fairly cheap. It has recovered 10.5% from a relentless decline. I believe more upside will be in store for investors in light of the company's 9.6% 5-year EPS growth rate forecast. If through just growth and dividends alone, this stock could--and should--outperform.

TakeoverAnalyst has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. 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. This article was written by the staff of TakeoverAnalyst, which does not intend on opening a position in the next 48 hours.

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