PC maker Hewlett-Packard (NYSE: HPQ) is perhaps the quintessential Silicon Valley success story. The company began in what is now a famous garage in Palo Alto, Calif. Of course, the company has come a long way since those early days, and the stock has experienced quite a bit of price oscillation along the way. So far this year the stock is down -8.5%, well below the gain of nearly +9% in the computer hardware sector. But recently there have been some significant bullish developments that could push HP shares higher. Here are five reasons why now is the time to bet on HPQ stock.
Strong Hewlett Packard Earnings Beat. On May 18, HP reported a 28% year-over-year profit increase in its fiscal second quarter (ended April 30). The PC maker posted adjusted earnings of $1.09 a share, well above the $1.05 per share predicted by analysts. Revenue surged 13% year-over-year to $30.8 billion, a number that also bested Street forecasts. The stellar results clearly show the company is back on track and running on all cylinders.
HPQ Stock Future is Bright. Along with announcing its strong fiscal Q2 earnings beat, HP also raised its full-year guidance to $4.45 to $4.50 a share, up from a prior estimate of $4.37 to $4.44. On the revenue front, HP said it now expects revenue to come in at $123.7 billion to $124.9 billion. The strong quarter, along with the bright full-year forecast, confirms that HP now is on the fast track to growth.
The Intel factor. After the closing bell on Tuesday, July 13, Intel Corporation (NASDAQ: INTC) reported much better-than-expected earnings that included comments about a marked increased business spending on technology and the PC upgrade cycle. As expected, the news helped Intel shares power higher. However, the real winners from the Intel beat are the PC makers, in particular Dell (NASDAQ: DELL), and of course, HP. Intel’s bullish comments on business spending confirmed recent research showing that companies are now upgrading their computer systems.
ChangeWave Research PC Spending Trends. According to the ChangeWave Alliance Research Network’s latest IT spending data, there has been yet another uptick in companies willing to devote capital on IT infrastructure. The survey shows a planned spending increase in Q3, which represents the sixth consecutive quarterly improvement for this key industry metric. The survey shows that of the 13 individual IT categories measured, PCs registered the biggest increase in planned spending. The survey also revealed that 73% of respondents say their company plans to buy laptop PCs in Q3, while 69% say their company plans to buy desktop PCs. The ChangeWave findings certainly auger well for the future of the PC market at large, including HP.
Buy HP Stock into Strength. There’s no denying that stocks in general have had a tough go of it since April. Yet after falling to 2010 lows in early July, we’ve seen a decided rebound in the general market. That rebound has been reflected in HPQ, as the stock is up over +10% since hitting its year-to-date low on July 2. The shares now trade above their short-term, 50-day moving average. And though the shares have a little further to go before topping their long-term, 200-day moving average, the upward momentum clearly argues in favor of a continued bull run in HPQ.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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