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Surprise! The Hewlett-Packard Turnaround Is for Real

Few thought Hewlett-Packard would even survive under CEO Meg Whitman, but now believers are stepping into the stock.

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To say the past three years have been miserable for Hewlett-Packard (HPQ) — and its investors — would be an understatement.

The stock fell from a peak of $55 in April 2010 to a low of $12 in November 2012, tablet sales have obliterated PC demand, and the company had to replace its CEO not just once but twice during that time (the second of whom was named by Bloomberg as the “Most Underachieving CEO”).

Given the train wreck, it would be easy to conclude Hewlett-Packard is a stock best left avoided. So why are HPQ shares up more than 80% year-to-date?

Because enough people now realize that HPQ’s next three years are going to be a heck of a lot better than the past three.

That Was Then

It’s amazing how little time and effort it takes to crush a company.

Leo Apotheker was at the helm of Hewlett-Packard for a little less than a year, and during that span the stock lost nearly 40% of its value. Although revenue actually grew during his tenure (September 2010 to September 2011), that year’s growth is largely attributable to the preceding CEO, Mark Hurd. In the fiscal year after Apotheker’s exit, the top line contracted by a little more than 5% … heresy for a computer technology company.

Granted, Apotheker was standing in front of a colossal hurdle. That was when tablet computers were hitting critical mass, stealing the very same personal computer customers that helped put companies like Hewlett-Packard and Dell (DELL) on the map in the first place. Now, Dell and HP were not only competing with other PC makers for a share of a shrinking computer market, but were surprised to simultaneously be up against better competition like the Apple (AAPL) iPad in the then-young tablet race; Hewlett-Packard’s Slate never really had a chance.

Apotheker’s solution: To get out of the personal computer business altogether, after already abandoning its webOS work, and continue to work on enterprise level stuff in an effort to become an IBM clone.

His plan didn’t go over well — with anyone. Ergo, Apotheker was shown the door, and Meg Whitman was ushered in. Her first order of business was to cancel the plans to cancel the PC division. By that time, though, after a few too many gaffes from the company and little confidence in Whitman’s ability to save the sinking ship, investors had mentally shelved the stock.

This Is Now

Not that she gets points for speed, but as it turns out, the Meg Whitman turnaround plan is working … or at least, the market has faith that it will work. The fact that investors have bid shares up to the tune of 90% this year convincingly makes that point.

Surprised? You’re not alone. But the few who’ve actually taken a deep look at what HP’s been working on for the past couple years have not only been impressed, but they see the much-improved marketability of new products and new viability in the overhauled company.

For starters, Hewlett-Packard finally realizes it can leverage its technological depth and relationships to build a few — though not too many — multiple consumer products that meet multiple consumer needs.

Article printed from InvestorPlace Media,

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