Help us, Windows 8! You're our only hope!May 23, 2012: 8:31 AM ET
Dell (DELL) is a disaster. Hewlett-Packard (HPQ) is expected to report a massive round of layoffs and more disappointing financial results after the bell. The PC is quickly becoming irrelevant in the eyes of investors as tablet mania rules the land.
So why is Microsoft's (MSFT) stock up nearly 15% year-to-date, making it the fifth best performer in the Dow Jones industrial average? A lot is riding on Microsoft's upcoming Windows 8 operating system, which has already won rave reviews for its tablet-like feel. Presumably, Windows 8 could be the catalyst to spark consumers and slow-moving corporate IT departments to finally upgrade their PCs. Many businesses are still running on Windows XP, having preferred to pretend that Vista never happened.
This could eventually be good news for Dell and HP. But investors have every reason to remain nervous. In fact, Microsoft investors may have to think twice about the recent run-up in Mister Softee is justified.
Whether or not Windows 8 succeeds will depend partly on the ability of Dell and HP to build desirable new mobile devices that are less like desktop (or even notebooks) and more like tablets ... refer to them as "netbooks" if you buy into Intel's (INTC) marketing hype. If Dell and HP can't capitalize on the best Windows 8 has to offer, both stocks are likely to remain the classic value trap, seemingly cheap stocks with bleak futures.
Sure, each seems like a bargain. They both trade for a little more than 5 times this year's fiscal earnings forecasts. But the biggest problem for Dell and HP is that their two main rivals are both actually growing and their stocks are cheap too. If you like the model of servers, storage and software that Dell and HP are trying to move towards, just buy IBM (IBM). It trades at just 13 times 2012 earnings estimates. I've referred to HP as IBM Lite and Little Blue for a while now. Dell is even less like IBM than HP is. And if tablets and mobile devices are your thing, can I interest you in a company called Apple (AAPL)? It is trading for only 12 times earnings forecasts for fiscal 2012.