Got a confession to make. I'm recycling the title. I wrote a piece entitled "HP Has $20 Written All Over It" to make the short case when the stock was trading at $26. The stock tanked as predicted (and in fact cratered to $16). Now Hewlett-Packard (HPQ) has fallen so much, I'm going long. So here goes: HP goes to $20.
Four reasons HP is a twenty:
1. Meg Whitman is wielding a big axe, chopping 29000 jobs costing $3.3 billion. Fewer bodies equals less future overhead. Even more important, it indicates a move to a smaller and more focused HP. Impressive cutting by Whitman. HP needed to downsize after overreaching in its acquisitions.
2. She is pushing the personal systems group (PSG) and printing together, a wise move. The divisions go together like peanut butter and jelly, driving synergies and cutting costs. And just maybe, HP will eventually spin off the computer/printing divisions together leaving a more compact company.
3. It has an activist shareholder on the board, Ralph Whitworth. As head of Relational Investors, he bought a whopping $400 million position at an average price of $22 in May. Relational Investors are in almost $700 million, their second biggest position. You don't place that big a bet unless you are sure of your position. Who doesn't wish for this kind of inside knowledge? Investors get to buy their shares at prices lower than Whitworth.
4. HP trades with other decimated tech stocks - RIM (RIMM) and Nokia (NOK). They've became crushed. Nokia's recent run is emboldening HP longs to do the same. It worked so far for Nokia. Why not HP?
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