4 Reasons Hewlett-Packard Is Worth Buying Near 52-Week Lows

May.15.12 | About: HP Inc. (HPQ)

Hewlett-Packard (NYSE:HPQ) shares look ripe for bargain hunters. After a number of disappointments, a market drop, and turnover in the CEO position, this stock looks incredibly cheap. The company designs and manufactures a variety of products which include printers, computers, tablets, software, and it offers consulting as well as other business solutions. Investors should consider Hewlett-Packard shares for a number of reasons now, which include:

1. The stock is just way too cheap! From just about every valuation metric, Hewlett-Packard shares look like a screaming buy. The stock trades for less than 6 times earnings, while the average stock in the S&P 500 Index trades for about 13 times earnings. It also trades close to book value, which is $19.80 per share. The company also pays a solid dividend, yielding over 2%.

2. Some high-profile value investors are starting to take notice of Hewlett-Packard shares. A recent Barrons.com article summarizes the positives seen by investment managers at Dodge & Cox. Investors appear to be overlooking this type of analysis right now, the article states:

From a longer-term perspective, there are things that give us real confidence, starting with the low valuation. But, No. 2, we like the basic strength of all the business franchises they have. Now, the core is still that printer business, including the selling of those printer cartridges, and they have the dominant market share with very high margins. It's a very profitable and very solid business with a lot of patent protection.

3. Microsoft (NASDAQ:MSFT) was, up until recently, just another unloved tech stock. Microsoft shares were languishing for months, in the same price range as Hewlett-Packard is at now, around $23. However, investors eventually warmed up to Microsoft once they realized the stock was undervalued. Microsoft still looks cheap, but Hewlett-Packard is even cheaper as it sports a considerably lower price to earnings ratio. Also, Hewlett-Packard trades for about 1.1 times book value whereas Microsoft trades at nearly 4 times book value, which is $8.17 per share. The two stocks offer a similar dividend yield, but Hewlett-Packard shines when you consider that it is expected to earn about $1 more per share for both 2012 and 2013 than Microsoft will.

4. Microsoft is expected to launch an all-new version of its operating system, Windows 8, around June, 2012. This could spark a upgrade cycle for the entire tech industry as businesses and consumers buy new laptops, desktops and other tech products with the latest features. This potential upgrade cycle could hit full-swing when back-to-school season starts, and it could carry into the holiday season and beyond. For Hewlett-Packard this will probably result in higher sales of printers, laptops, desktops, and more demand for consulting services.

Key Data Points For Hewlett-Packard From Yahoo Finance:

  • Current Share Price: $22.97
  • 52-Week Range: $21.50 to $37.70
  • Dividend: 48 cents which provides a yield of 2.1%
  • 2012 Earnings Estimate: $4.04 per share
  • 2013 Earnings Estimate: $4.42 per share
  • P/E Ratio: about 6 times earnings

Key Data Points For Microsoft From Yahoo Finance:

  • Current Share Price: $30.68
  • 52-Week Range: $23.65 to $32.95
  • Dividend: 80 cents per share which yields 2.6%
  • 2012 Earnings Estimate: $2.72 per share
  • 2013 Earnings Estimate: $3.04 per share
  • P/E Ratio: about 11 times earnings

Data is sourced from Yahoo Finance.

Disclosure: I am long HPQ.

Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.