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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?

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