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Hewlett-Packard (NYSE:HPQ) is one of the most compelling stocks that I see on my monitor right now. I initiated a position on Friday and have added to it since. With all the talk about beaten down stocks, the fact is that most of these equities, including coal, steel, rails, etc., have retained their buy ratings, hardly the hallmark of complete capitulation of sentiment. With HPQ, however, I believe there are as many sell recommendations from the Street as Buy opinions, the rest being neutral (a rough observation).

At approximately 5X EPS, even if I haircut the earnings forecast by 20%, a significant cut, I’m still looking at an inexpensive equity that is as unloved as Ahmadinejad would be if he joined my local synagogue. HPQ is a great way to participate in a market rally since the downside is limited and as those with cash look for easy entry into the market and potential value, HPQ has to pop up on their buy list. I don’t remember the last time I owned HPQ, if ever, so I have the advantage of a clear mind, not biased by buying into the prior value propositions that didn’t pan out. In fact, I don’t remember a stock ever being as hated as this one, not even Research In Motion (RIMM), [which I also recently bought], a great buy signal, particularly for contrarians.

Ray Lane did not acquit himself particularly well in the Faber interview on CNBC on Friday, which only served to increase the negative sentiment, mine included, and I took that opportunity, after my knee jerk reaction, to enter a position believing that if I could feel that way toward an equity that I don’t even own, the bottom was reached. The most intriguing point coming out of the interview was Meg Whitman’s statement that her focus right now is on making the quarter, a bold statement given that the quarter is fairly far along. Hopefully she carefully thought that comment through, otherwise she is wasting the first quarter of her tenure, which is usually a kitchen sink, set expectations low event. If the quarter does now disappoint, I may have made a mistake, with no solace that it will be a lesser error in judgment than she made. But I’m willing to give the well-respected Whitman the benefit of the doubt; she deserves it.
I still believe the Board of Directors has to go en masse and that Whitman is not the optimum choice; that the BOD should have taken its time to search for someone with more experience in this sector of technology. At the very least it would have given the market more confidence in the Board and Whitman. Retailing is a different business than hardware and when Whitman left EBAY, the growth had already started to ebb, although she should be commended for her timing because the story may have in fact seen its best days.
HPQ is a compelling trade from a risk/reward standpoint. The tell is that most who read this article will shake their heads and quietly utter “been there, done that.”
Source: Hewlett-Packard: Confessions Of A First Time Buyer/Compelling Risk Reward