Don't Confuse This Dow Value Trap for a Value Stock

Hewlett-Packard (NYSE: HPQ  ) faces the negative side of industrywide trends and is suffering big-time. Last quarter saw revenue fall by 5% and EBIT by 20%, and it had a $10 billion impairment. On top of that, its global market share declined by 2 percentage points, a substantial fall-off for such a large company.

While HP is still the world's largest PC maker, that gap is narrowing, with increased competition coming from Asia. However, the real problem is marketwide, affecting every player in the industry. It all comes down to the slowing demand for PCs, which flattened out in the second quarter of this year.

There were high hopes that Microsoft's (NASDAQ: MSFT  ) release of its Windows 8 operating system would drive upgrades and spur a turnaround, but that's looking less and less likely to be a growth catalyst of the magnitude needed.

Some investors may be intrigued by HP as a potential "value stock" right now, especially with dividends up above 3% and falling substantially over the course of the past year. However, Fool.com analyst Andrew Tonner classifies this as a textbook case of value stock versus value trap -- with HP landing squarely in the latter category. Shares may be empirically cheap, but they can (and probably will) continue to spiral downward.

For more, check out the following video.

In a nutshell, if you're looking for strong long-term investments, steer clear of HP and other PC-makers such as Dell (NASDAQ: DELL  ) . Instead, check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.

Andrew Tonner and Anand Chokkavelu have no positions in the stocks mentioned above. You can follow Andrew and all his writing on Twitter at @Andrew Tonner. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 12, 2012, at 11:36 PM, dilfarb wrote:

    Ah, yet another 'analysis' that focuses solely on the PC side of HP's business. Here's a hint: they make most of their money selling other products. And as far as the writeoff (imparement) mentioned, that's money long ago spent thanks to Mark Hurd's massive stupidity.

  • Report this Comment On September 13, 2012, at 9:47 AM, SirOvidius wrote:

    Is interesting to remark the frequency and intensity of dedicated time and negative energy that MF is spending trying to convince the people about what their minority calls "a futureless company". Just desgususting and irational in case of HP!

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