What follows is a list of technology companies that are down 15% or more over the last 52 weeks and have 20% or greater upside. They cover a variety of industries: IT support, computer hardware, and office equipment. I am most optimistic about Hewlett-Packard due to my faith in the CEO and how the fundamentals are overly depressed due to past missteps that really have no bearing on future performance. All ratings are sourced from T1 Banker.
Xerox is rated a "buy" and trades at a respective 9.5x and 6.8x past and forward earrings with a dividend yield of 2%. It fell 18.5% over the last 52 weeks.
Consensus estimates for Xerox's EPS forecast that it will grow by 4.6% to $1.13 in 2012 and then by 9.7% and 13.7% in the following two years. Assuming a multiple of 9.5x and a conservative 2013 EPS of $1.21, the rough intrinsic value of the stock is $11.50, implying 36.6% upside. As I speculated earlier, the company could be acquired by Dell (DELL) or even HP (HPQ) due to its niche focus and first mover advantages. The company is nevertheless risky due to spending cuts and the fact that it is 60% more volatile than the broader market. On the other hand, if the economy recovers quicker than what the market anticipates, investors will benefit from considerably high risk-adjusted returns. Overall, I recommend an investment in the company since I think risk significantly outweighs reward.
HP is rated a "hold" and trades at a respective 8.7x and 5.6x past and forward earnings with a dividend yield of 2%. It fell an egregious 40.8% over the last 52 weeks.
Consensus estimates for HP's EPS forecast that it will decline by 17.2% to $4.04 in 2012 and then turnaround to grow by 9.4% and 6.8% in the following two years. Assuming a multiple of 9x and a conservative 2013 EPS of $4.53, the rough intrinsic value of the stock is $39.15, implying 59.4% upside. The firm has a strong brand and margins are improving just in time to exploit the benefits of a full recovery. Its global footprint and diversification also hedges against domestic volatility more than what the market appreciates. I strongly recommend a long investment in HP.
Pitney Bowes (PBI)
Pitney Bowes is rated a "hold" and trades at a respective 10.7x and 9.1x past and forward earnings with a dividend yield of 8.1%. It fell 24.2% over the last 52 weeks.
Consensus estimates for Pitney Bowes' EPS forecast that it will decline by 10.2% to $2.11 in 2012, decline by 3.3% in 2013, and then grow by 10.3% in 2014. Assuming a multiple of 11.5x and a conservative 2013 EPS of $2.01, the rough intrinsic value of the stock is $23.12, implying 24.6% upside. Fundamentals are naturally challenged by the transition to internet from traditional mailing. On the other hand, management has showcased confidence over cash flow by increasing dividends for three decades. This 8.4% dividend yield significantly mitigates risk.
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