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This article is about bringing to you the five best hardware stocks that have strong business fundamentals, robust growth prospects, and valuation comfort. I believe that during these volatile times one needs to invest in companies that have the financial muscle to withstand weak economic conditions and emerge ahead of the pack:

Hitachi Ltd. (HIT) – It is the largest industrial electronics company in Japan with strong focus on development systems, information and communication systems and power systems. The company is up to the changing economic scenario and has initiated the process of divesting its non-core activities and enhanced its focus on its core competencies. It divested its Hard-disk drives business in March of this year. The company is on overseas expansion drive with major focus on the emerging markets which are expected to be the engines of growth going forward. We expect the company to perform strongly in 2H 2011 driven by automotive-related sales, storage services and construction machinery businesses. Also, the company is recently in news about its proposed merger with Mitsubishi, which will result in the largest infrastructure company in the world with integrated operations. On CY12 basis, the company has a PE of 8.6 times and a P/B of 1.27 times with return of equity of 17%. The ADR of the stock has performed strongly in the last one year with returns of 33% during the last one year.

EMC Corp/Massachusetts (NYSE:EMC) - EMC is a globally leading company that provides information storage systems, software, and services to enterprises. EMC has recently increased its stock repurchase to $2 billion from the earlier planned 1.5 billion repurchases. EMC has more than USD9.0bn of cash and has been generating steady operational cash flow, which gives a strong indication about the performance of the company. Many OEMs are being affected by the current economic situation but EMC is in a position to withstand this situation although its performance might be strained for a short time. Although the stock is trading at a trailing PE of 15, we feel the stock is not over-valued as the company has strong EBIT margins in the range of 22-25% and its trailing EV/EBITDA is ~6.5x. The company is expected to grow at a CAGR of 12% and we believe that the company can protect its high margins successfully. The stock is currently trading at $21.6 and has over the last one year given a return of 17.6% returns for its share holders and we believe that its shareholders will be well rewarded if they stay invested with this stock.

Canon Inc. (NYSE:CAJ) – It is the global leader that provides office equipment and cameras. The company is also the market leader with market share of ~50% in the laser printers including OEMs and is also a large provider of copiers with more than 18% market share. It caters mainly to the international market with more than 70% of its sales coming from the Western and emerging countries. The stock is trading at a higher PE of 16.5 times but is strongly supported by its higher dividend yield 3.5%. The stock has also given a return of 14.5% over the last one year giving a cumulative return of 18.0%. We believe Canon is in a stronger position relative to its competitors because of its strong balance sheet and its partnership with other global giants like Hewlett Packard (NYSE:HPQ) and Océ (OTC:OCENY). The company was affected by the earthquake in Japan but has been demonstrating its ability to come out stronger and we believe that the company will recover from that impact very soon. Also, the company has been looking for some M&A opportunities to further expand its growth profile.

Hewlett-Packard (HPQ) - Hewlett-Packard, the world’s largest IT company, is a technology giant that has operations in more than 170 countries in the world. It generates revenue of $126 billion and is ranked 11th in the list of Fortune 500 companies. HPQ has recently announced that it will shut down its smart phone business, sell off its PC business and will focus on enterprise computing division. The company has embarked on a share repurchase program and is expected to make ~$13bn-$17 billion over the next two years leading to EPS growth. The stock is currently trading at $23.6 which is its 52-week low and has fallen by 40.0% in the last one year. At a trailing PE of 5.3 times, the stock looks extremely attractive. We feel that HPQ would come out successful with its focused approach and see a improvement in EPS in the next financial year. HP is another large giant that has focused on emerging markets as a part of its integral growth strategy. The company has continuously endeavoured to provide cheaper solutions to its customers to make their operations more cost effective. It has a high return of equity of 21.6% and has a dividend yield of 1.53%.

International Business Machines (NYSE:IBM) – IBM is a global giant that manufactures computer hardware and software and offers consulting services. We regard IBM very highly because of its strong execution abilities. Compared to its peers, IBM revenues are more recurring in nature because of its services business, which is also a high margin business for the company. The company has also announced that it plans to do cost savings of USD8 bn between the period 2011-1015. IBM also has strong presence in India, which it uses as a low-cost hub to provide services to its global customers. The company has found a niche there, alongside Infosys (NYSE:INFY) and Wipro (NYSE:WIT). The company has an aggressive M&A strategy and will be one of the major contributor for its growth in the future. IBM has demonstrated strong performance in Q2, with revenue growth of and 12% YoY and EPS growth of 18% YoY .The stock is trading at a trailing PE of 13.7x which we regard as low compared to the growth prospects of the company. The stock has given an excellent return of 38% over the last one year and has a dividend yield of 1.7%. Its ROE is one of the best in the industry at 65%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.