The Buzz

All markets and investing news all the time

Meg Whitman has rescued HP

May 6, 2014: 1:28 PM ET
She may not be faster than a speeding bullet. But Meg Whitman has been like a superhero to HP investors.

She may not be faster than a speeding bullet. But Meg Whitman has been like a superhero to HP investors.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

It's a bird. It's a plane. It's Meg Whitman!

Yes, it may be time to compare the Hewlett-Packard (HPQ) CEO to the man (and woman) of steel. After all, the stock is up 16% so far in 2014. That's solid for any four-months and change stretch. But it's even more impressive when you consider that tech stocks have been tied to the Allman Brothers' whipping post this year. (Good lord I feel like I'm dyin'.)

The Nasdaq may only be down 1.5% year-to-date. But it's been an incredibly bumpy ride. And CNNMoney's Tech 30 index, which includes Hewlett-Packard but also has beaten up high-profile momentum stocks such as Twitter (TWTR), LinkedIn (LNKD) and Amazon (AMZN) in it, has fallen nearly 4% this year.

So why is HP doing this well? It's the second-best performer in the Tech 30 this year. Only Electronic Arts (EA) has enjoyed a bigger gain.

One of the reasons is a simple matter of risk aversion. HP pays a dividend that yields a decent 1.8%. The company is perceived as a stable port in the tumultuous tech storm. And it's not alone.

Other "old" dividend-paying tech companies have outperformed the market this year, including Oracle (ORCL), Apple (AAPL), Qualcomm (QCOM) and Microsoft (MSFT).

But Whitman, who took over as HP CEO in September 2011 after the brief (and disastrous) tenure of Leo Apotheker, deserves a lot of credit for stopping the bleeding at HP.

Whitman inherited a mess when she became CEO. HP was a bloated company that went on shopping sprees under Carly Fiorina (Compaq) and Mark Hurd (EDS, 3Com, Palm) and was sorely in need of restructuring. Sadly, that meant layoffs. Lots of them. Whitman made the painful decision last year to cut 34,000 jobs.

But she's also making moves to increase the company's market share in areas where it still is competitive.

Related: The toughest CEO jobs in America ... Whitman is surprise savior

One recent example? A deal announced last week with Foxconn to make low-cost servers has been viewed favorably. Foxconn is the controversial Taiwan-based electronics manufacturer best known for making Apple's iPhone and iPads -- and its poor track record when it comes to worker conditions.

HP said the servers will be optimized for cloud computing -- an area of the tech market that is exploding. It's no secret that many big tech firms see their future in the cloud. Microsoft even promoted its cloud guru, Satya Nadella, to CEO earlier this year.

Brendan Connaughton, chief investment officer with ClearPath Capital Partners, owns the stock and is a fan of what Whitman has done.

"I think Meg Whitman is a tremendous operator. She is straight-forward. The deal with Foxconn is a great one," he said.

Connaughton points out that Whitman, who was previously CEO of eBay (EBAY), seems to be doing a good job of trying to identify two or three areas where HP can excel. Servers seems to be one. Laptops might be another. Printers remain a huge cash cow for the company as well.

The good news is that Whitman seems content on not trying to be all things for all tech consumers. It's not trying to outdo Apple and Samsung in consumer electronics. It's focusing more on business customers but is no longer going all-in on enterprise software in the way that Apotheker had tried to do with the botched Autonomy acquisition.

Related: HP reveals 'extensive errors' in Autonomy accounting

I used to derisively refer to HP as Little Blue and IBM Lite because it seemed to have no identity of its own other than emulating what the engineers in Armonk were doing. That no longer seems to be the case. And check out how HP's shares have done since Whitman took over compared to IBM (IBM). It makes you wonder if Warren Buffett bet on the wrong tech horse a few years ago.

Connaughton also appreciates that Whitman is not making the same mistakes as some of her predecessors. She is not spending big bucks on risky acquisitions.

"HP used to be incredibly focused and then it became incredibly diverse. Whitman needs to find some place in the middle," Connaughton said.

So can HP's stock keep climbing?

Even though it's been on a tear lately, it has room to catch up. Shares are still underperforming the Nasdaq since Whitman took over -- but not by nearly as much as they were at the end of 2012.

HP is still is well off its all-time highs from during the height of the 1999-early 2000 tech boom though.

It is also significantly below the more recent multi-year peak it hit in 2010 during the Hurd era. In case you forgot, Hurd was forced out of HP in 2010 following an expense report scandal. He's now the co-president at Oracle. (And possible heir apparent to Larry Ellison? Or is it Safra Catz? Or will Ellison just live forever?)

And Whitman now has the tougher task of figuring how to grow sales again. The cost-cutting is expected to lift profits. HP will report its latest quarterly results on May 21. Analysts are forecasting a small increase in earnings per share ... but a slight dip in sales.

That's pretty much the expected story for this year and next too. Wall Street is predicting earnings growth of 4% in fiscal 2014 and another 4% in 2015. Revenue is likely to continue sliding a bit in both years though.

But does that matter? Connaughton argues that HP stock is still so cheap -- even after this year's run-up. Trading at less than 9 times fiscal 2014 earnings estimates, HP is hardly a frothy momentum tech stock along the lines of Facebook (FB) or Netflix (NFLX).

Related: HP's latest earnings impressed Wall Street

In other words, investors are still valuing HP as if sales will NEVER increase again. Expectations are extremely low.

"All HP needs is mild success with a few businesses and that could lead to revenue growth," Connaughton said. "Meg Whitman doesn't have to get that much right and the stock can go up."

If he's right, investors can send a hearty thanks to Jerry Brown. He defeated Whitman in the California gubernatorial (such a fun word to say!) race in 2010. Who knows what would be going on with HP right now if Whitman were working in Sacramento instead of Palo Alto?

  • 7 lucky tech stock bargains. Yes, they exist

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

    Tech stocks have been a bit of a whirling dervish lately. And the Nasdaq was getting taken to the proverbial woodshed again Thursday.

    But repeat after me. This is not 2000! Tech stocks, writ large, are MORE

    - Apr 10, 2014 2:40 PM ET
  • The 2013 Nasdaq is nothing like 2000

    It's been a banner year for stocks. The Dow and S&P 500 have been in record territory since March, while the Nasdaq has been trading at its highest levels since 2000.

    Though the robust gains have ignited some worries that stocks may be overvalued, most experts believe that a dose of skepticism is actually healthy and predict that stocks will continue to rise next year, albeit at a more MORE

    - Dec 22, 2013 9:00 AM ET
  • Microsoft plunges 11%, worst day since 2009

    It was a bloody day for technology stocks on Wall Street, as investors punished the entire sector after Google and Microsoft both delivered disappointing earnings results.

    Microsoft (MSFT) took the worst beating, plunging more than 11% -- its worst one-day drop since January 2009. The company badly missed Wall Street's profit forecasts after taking a huge write-down on its Surface tablet last quarter.

    That bad news as was a hot topic among MORE

    - Jul 19, 2013 4:01 PM ET
  • SEC OKs Nasdaq's $62 million Facebook payout

    The Securities and Exchange Commission approved Nasdaq's plan to pay $62 million to trading firms that incurred losses during Facebook's botched public debut last May.

    The four major trading firms -- Knight Capital (KCG), Citadel, Citigroup (C) and UBS (UBS) -- lost a combined $500 million due to technical glitches at the Nasdaq during Facebook's initial public offering.

    And while the accommodation plan won't compensate the firms in full, the SEC said it MORE

    - Mar 25, 2013 12:32 PM ET
  • Norwegian Cruise Line sails 33% higher in IPO

    Norwegian Cruise Line (NCLH) sailed more than 30% above its initial public offering prices when its shares debuted on the Nasdaq (NDAQ) Friday.

    The third largest cruise ship operator in North America sold 23.5 million shares for $19 apiece -- slightly better than the estimated range of $16 to $18.

    Norwegian Cruise Line plans to use part of the $446 million it raised to pay down some of its $3.1 billion MORE

    - Jan 18, 2013 11:49 AM ET
  • NYSE wins 2012 IPO wars

    The battle for the hottest IPOs among stock exchanges is fierce, and it looks like the New York Stock Exchange has won first prize.

    Early in the year, it looked like Nasdaq (NDAQ) would be a shoe-in, after it landed the Facebook (FB) listing.

    Of course, the Facebook IPO was an epic flop, and the New York Stock Exchange (NYX) ultimately edged ahead of its rival.

    The NYSE landed the majority, or MORE

    - Dec 27, 2012 3:19 PM ET
    Posted in: , , ,
  • SolarCity IPO shines

    SolarCity (SCTY) is shining on its first day of trading.

    In its debut on Nasdaq (NDAQ) Friday, SolarCity closed 47% above its $8-a-share initial public offering price.

    To get that pop, SolarCity was forced to scale back its expectations. The company had originally tried to price its offering between $13 and $15, which would have given it a valuation close to $1 billion, and raised $141 million.

    Even though the company upped MORE

    - Dec 13, 2012 12:50 PM ET
  • Facebook entry into S&P 500 could be 'imminent'

    Facebook will make its way into the Nasdaq-100 (NDX)  next week, but the social network could find itself in the even more widely tracked S&P 500 (SPX) soon enough, too.

    According to Standard and Poor's methodology, "initial public offerings should be seasoned for 6 to 12 months before being considered for addition to an index." Facebook (FB) just celebrated its six-month birthday as a public company a little over two weeks ago.

    While MORE

    - Dec 6, 2012 1:41 PM ET
  • Facebook to join Nasdaq-100

    Facebook is joining a new social network -- the Nasdaq-100 to be precise.

    The California-based social media company will join the elite index on Dec. 12, replacing Infosys, an Indian tech company that is moving its U.S. listing to the New York Stock Exchange.

    The move is not exactly a surprise. The Nasdaq-100 includes the 100 largest non-financial securities trading in the market. And with a market capitalization of around $60 billion, Facebook MORE

    - Dec 4, 2012 11:41 PM ET
Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! $WYNN down more than 2% on decent volume. But are Macau fears overblown a little bit? Vegas making comeback.
Powered by WordPress.com VIP.
Follow

Get every new post delivered to your Inbox.

Join 231 other followers