HP Is Telling You To Buy These 3 Companies

Hewlett-Packard is a massive company that operates in many divisions, but the recovery of one segment in particular might imply three great buying opportunities.

Feb 25, 2014 at 3:00PM

After years of double-digit annual declines, Hewlett-Packard (NYSE:HPQ) is now seeing a recovery in computers. In the company's fiscal first quarter, it saw PC sales rise 4%, a figure not seen in quite some time. This, combined with comments from CEO Meg Whitman, might imply great investment opportunities in Intel (NASDAQ:INTC), Western Digital (NASDAQ:WDC), and perhaps Seagate Technology (NASDAQ:STX).

Is the PC market improving?
Hewlett-Packard's total revenue for its fiscal first quarter declined by 0.6% to $28.2 billion, but its large PC division saw growth of 4% year over year after dropping 2% in the prior quarter. This particular quarter of PC growth marked the first in ten quarters that sales rose.

In a CNBC interview, Whitman discussed the impact of a Windows refresh, and that while consumers are still purchasing tablets, they are also seeing that PCs are necessary in a new world of big data and analytics. Thus, PCs might not be ready for double-digit year-over-year growth, but have perhaps reached a bottom in a very steep decline.

Intel: A staple in HP computers
HP is known for building strong PCs and laptops, and in doing so has built a very deep relationship with chipmaker Intel. Specifically, Intel's chips can be found in the vast majority of all HP laptops, PCs, and even its servers. Hence, HP's quarterly growth in PC bodes well for Intel.

With that said, Intel is not necessarily guiding for accelerated growth, as revenue and EPS in 2014 is expected to be flat. Furthermore, Intel recently announced plans to layoff nearly 5% of its workforce, which isn't exactly a vote of confidence for growth.

However, in Intel's January earnings report, investors seemed to discount the fact that its PC business was flat year over year, after dropping 3% in the quarter prior. This flat performance showed improvements, and given the fact its 62% of Intel's total business, such improvements might also insinuate a boost for the company, meaning it's possible that Intel is just guiding conservatively.

With Intel trading at just 13 times earnings, far below the S&P 500 average of 19, this strength and hint of a recovery might prove to be a great investment opportunity.

Western Digital and Seagate Technology: Ready to thrive with PCs
Western Digital and Seagate Technology combined control nearly 85% of the hard disk drive (HDD) market; HDDs are storage devices used in PCs, laptops, and an array of other devices like game consoles and DVRs. In the fourth quarter of 2013, the total addressable market (TAM) for HDDs stood at 142 million according to both companies, and Western Digital shipped 63.1 million while Seagate shipped 56.6 million.

If we rewind five-seven years ago, nearly all of these HDDs came from the PC or laptop market, but with an industrywide decline, both companies have made investments in other segments. In particular, Seagate and Western have grown via the cloud, as the data transferred to the cloud is stored on HDDs. Also, both have made investments in solid state drives (SSDs), which are similar to HDDs but used in smartphones and tablets.

With that said, the infrastructure is still in place for significant growth if the PC/laptop market recovers, and the performance of both HP and Intel is a good indication that such a recover is in place. However, it's worth noting that Western Digital has done a much better job at gaining market share. For example, Western Digital's total share of the HDD market stands at 45% while Seagate's is 40%, although each had equal share 12 months ago . Furthermore, while both companies are valued similarly, Western Digital likely presents a better investment opportunity due to its market share gains.

Final thoughts
Essentially, these are four companies that could all thrive if and when the PC/laptop market recovers. While Western Digital is likely a better opportunity than Seagate, it's worth noting that all four present great value.

HP, Intel, Western Digital, and Intel all trade at forward P/E multiples of 10 or below, and all pay an annual dividend. This is value not often seen in this market, but has been created due to a weak PC market. Thus, a recovering market can no doubt take these four stocks significantly higher, and HP is giving us a good indication that this will occur.

These 3 stocks can help you retire rich
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Western Digital.. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers