Hewlett-Packard - Time To Buy A Loser Stock

| About: HP Inc. (HPQ)

Hewlett-Packard (NYSE:HPQ) is down 44% over the past 12 months. Bad news is swirling around decreased earnings based on the revised outlook of people printing less paper, and printers and print supplies are 50% of HP's profit. The printing part of the business was down 7% for the most recent earnings report that came out February 22. What even hurt more was the 15% drop in PC sales, compared with only 4% for its major competitor DELL. Some of these numbers can be attributed to the hard drive shortages that occurred late in 2011, and of course some personal users are now using iPads more as a recreational device. But I believe the majority of customers, large businesses, could just be waiting for two things - a price drop on computers when hard drive prices come back down, and Windows 8. Windows 8 is scheduled to come out in October, though there are rumors that a release candidate may be out by May. HP also plans on developing a new tablet that will run Windows 8 later this year. In a previous post of mine, I highlighted that Windows 8 will be designed much more for the mobile platform, and could finally pose a challenge to other smartphone platforms and the iPad (at least in a business setting)

I like that Meg Whitman has come out to say that HP is a hardware company. Sure the margins on hardware are not the highest (6% on personal computers, 20% on printers, networking and servers), but these are things that HP knows how to do pretty well, and it can continue to make good money on them.

Even with analyst downgrades over the past 90 days, the earnings still look very solid for HP, with 2012 EPS estimates at $4.02 and 2013 at $4.42. These numbers would place a forward PE of about 6 on HP. HP also announced a small increase on the dividend, which now puts it at 52 cents a year, or just over a 2% yield.

Conclusion: With an insanely low PE, Meg Whitman now behind the wheel at HP, and some overhead cleanup at HP, it's truly hard to believe that HP will not come back to a more respectable form over the next couple years. Printer sales/supplies will continue to diminish as expected, but printed paper is still necessary in many cases. Computer sales will roar back here at the end of the year, and maybe even a surprise - new tablet sales.

Disclosure: I am long HPQ.