Monday, April 27, 2009
(Cont'd from above)...

Jim (cont'd):   

Now, if you did not have much experience in investing… then you would think that this was a really negative article… you would be selling the stock… you would read sentences like, “most pressing is widespread concern that Mr. Hurd has built an inflexible holistic giant. So obsessed with schematics and data driven financial machinations that it has lost the ability to deliver that prized and perennial Silicon Valley trick. To surprise and astound.”… you would want to sell HPQ after reading that sentence, right… you would worry that the company lacks “creative inspiration”… you might be concerned by the characterization of Hewlett Packard as “the dull grunt of the tech world”… and be disappointed that another quotation.. “biggest bets surround the plain vanilla business of providing technology infrastructure to clients”.

Now, I am not trying to knock The New York Times, far from it… the article was must read for those who want to learn about how a big technology works… but I think that if you have ever traded, if you have ever been a professional, if you have ever tried to access why a stock goes up… then you might dismiss this piece totally out of hand… the questions in this story, why isn’t Hewlett Packard coming up with the next iPod?… How come it is not as sexy as Amazon or Research In Motion… interesting… but they should have nothing to do with investing… a normal retail investor, a regular person who owns stocks, might read this article and freak out… because it sounds like Hewlett Packard does not have what it takes… that would be wrong… as I see if, if you are an investor, there is quite simply nothing helpful in this article… and that is not meant as a criticism of the story… it is meant as a warning to the people who might jump to the wrong conclusions.

Does Hewlett Packard need a dose of anarchy… no, it is a business not a Sex Pistol song… we do not want Emma Goldman running Hewlett Packard… or Sacho and Vanzitie as co-CEO’s either… I think that Hewlett Packard is a fabulous stock… I like it so much that I own it for my charitable trust, which you can check out at ActionAlertsPlus.com, where I send out the bulletins before I buy… the media loves to tell us about what is cool… here is a newsflash… investing is not cool at all… investing is clinical… there are four companies that I have seen propelled by cool… Apple, Research In Motion, Google, and Amazon… those are the ole four horseman of tech for Mad Money… and they are about as rare as they get… and I still like them… there are other ways to make money besides innovation though… and not that Hewlett Packard is not still innovative, it is just not as visible as those other companies… we like those four stocks because they are able to put together great financials… but almost every other company that has tried to be cool has failed.

Sure Hewlett Packard is not Apple… neither are thousands upon thousands of other companies, so what… Hewlett Packard trades at a fraction of the price to earnings multiple to Apple… so even though it isn’t a super pioneer, and maybe not as good a marketer… few are… you have to pay very little for its consistent growth even when things are bad in the global economy… this piece in The New York Times reminds me of watching a football game on TV… where the quarterbacks play action fake to the running back is so good that the cameras follow the running back, while the quarterback keeps the ball and passes for a touchdown… the Times is following the running back… but we are investing on this show with the equivalent of John Madden… we played the media, we have played on the field… and we can tell you that you should follow the quarterback… Mark Hurd… despite his Bailer blood lines and the fact that he played tennis there.

And while you might think that he should be trying to dazzle… he does something much more important… he gets the job done… there are always stories like this where the media shakes you out of good stocks for irrelevant reasons… do not concern yourself with the hype… the press thinks that it is much more important to have a bunch of whacky guys who run things up the flagpole and see if the customer salutes it… they think that being too focused on the business side of things is a bad thing… and this is insane if you are an investor… I think that Hewlett Packard is a buy for precisely the reasons that The Times is so worried about it because Hurd is an operations guy who can deliver great numbers… and has done a fabulous job of cutting costs and transforming HPQ from just another PC company into a global diversified technology business that is trying to take over the world.

I do not care that Hewlett Packard is not coming up with the next big smart phone… because I saw the PC market data that came out last week showing that the companies first quarter PC shipments rose by 3% year over year… outperforming the overall PC market which fell by 7% during the same period… these numbers plus server share numbers that I expect out soon, that will be terrific, are likely the reason that Hewlett Packard just reiterated guidance 3 weeks ahead of its quarter… I like the massive cash flow generated by the printer business… where the competition has simply dropped by the wayside… I like its server and storage business, because information technology spending has held up well despite a tough environment… I think that Hewlett Packard is becoming more of a services and outsourcing business… something in the story in The Times considers dull, if the story considered it at all, is fantastic news… their acquisition of EDS, which seems to be winning more multi-year outsourcing deals was brilliant… and should allow Mark Hurd to cut another $2.5b in costs over the next 3 years… as well as take major market share away from IBM… the only other company that now has a product portfolio that is as broad as Hewlett Packards.

Okay, so Hewlett Packard may not seem sexy to newspaper reporters… who think that it needs Viagra… But with its stock trading at just 9.7 times expected fiscal 2009 earnings, a huge discount from its 5 year average multiple of 17 times, to me it looks sexy… at least to this 64 year old.

Here is the bottom line…

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