Why Hewlett-Packard is Trouncing the Market This Year

Hewlett-Packard has been on fire this year. Why the PC maker once left for dead has rallied back.

Jul 7, 2014 at 10:00AM

Hewlett-Packard (NYSE:HPQ) has rallied more than 20% in 2014, far outperforming the broader market.

HPQ Total Return Price Chart

HPQ Total Return Price data by YCharts.

Interestingly, its continued reliance on traditional PCs has proven to be immensely beneficial. Viewed in the context of the broader industry, Hewlett-Packard's rally is not so shocking.

The end of Windows XP
Hewlett-Packard's year-to-date rise lines up with similar moves seen at chip giant Intel (NASDAQ:INTC) and Windows developer Microsoft (NASDAQ:MSFT). Although Hewlett-Packard is the best-performing of the group, all three stocks have beaten the broader market this year with double-digit gains.

HPQ Total Return Price Chart

HPQ Total Return Price data by YCharts.

The correlation is not coincidental. In April, Microsoft officially ended technical support for Windows XP after nearly 13 years. At first, that might not seem significant, but a shocking number of PCs continue to rely on Microsoft's ancient operating system: As of May, Net Applications estimated that more than one in four Internet-connected PCs still used Windows XP. That is a problem, as the end of support means the end of patches and security fixes -- in the future, XP users will be exposed to viruses and exploits.

Users of Windows XP can simply buy a newer operating system from Microsoft, but many -- particularly enterprises -- have taken the opportunity to purchase an entirely new PC. That's been great for Hewlett-Packard, the world's second-largest manufacturer of PCs. Gartner estimates that Hewlett-Packard sold 16% of the world's PCs in the first quarter this year, with shipments rising 4.1% from the first quarter of 2013.

Intel has likewise benefited, as its processors power the vast majority of the world's traditional PCs. The company accounted for more than 85% of the PC processor market in recent quarters.

Strong PC sales boost Hewlett-Packard's earnings and raise Intel's guidance
Some forward-thinking analysts had expected the end of Windows XP to benefit Hewlett-Packard, Microsoft, and Intel, and investors may have piled into the stocks ahead of April. But financial results from all three companies have supported the notion that the PC market is experiencing something of a resurgence.

In May, Hewlett-Packard's earnings came in broadly in line with Wall Street analysts' expectations. Revenue was a bit light, but sales in Hewlett-Packard's personal systems unit (which is largely made up of PCs) were up 7% on an annual basis. Likewise, in June, Intel announced that its quarter was going better than it had anticipated, including a roughly $700 million spike in revenue beyond what had been anticipated. In April, Microsoft shares rose after the Windows maker posted better than expected earnings. Revenue from Windows OEMs was up 4%, with a 19% gain in Windows Pro revenue (enterprise).

Is the PC's resurgence fleeting?
With Hewlett-Packard's rally appearing to be largely a byproduct of a resurgent PC market, investors may be skeptical that the stock can continue to outperform -- at some point, businesses are going to finish their transition, while tablets and smartphones continue to get better. 

That may be the case, but Hewlett-Packard is take other steps as well. In May, it announced another round of job cuts, saying that as many as 16,000 additional Hewlett-Packard employees could be laid off. At the same time, it's making big bets on new products, including a supercomputer called "The Machine."

With PCs and printers still accounting for more than half of its revenue, Hewlett-Packard has much work to do before it can shed its image as a PC giant. But that may not be a terrible thing -- it has definitely benefited Hewlett-Packard shareholders in 2014.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers