Hewlett-Packard Overview

March 2nd, 2005 - Copyright by Morris Rosenthal - - contact info

Trading Notes

DELL
HPQ (Hewlett Packard)
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IOM (Iomega)

Notes on trading HPQ stock for investing in my SEP

Hewlett-Packard is one of the most attractively valued big-cap tech stocks, if you don't believe they are going to see sinking revenues and earnings. With a P/E multiple under 18, a 1.5% dividend yield and 66% institutional ownership, you'd think they'd be the poster child for the non-horrifically over valued crowd. HPQ trades at less than a third of its bubble valuation, volume has been on a fairly steady rise throughout its trading history (probably due to a controlled stock price), and their debt position isn't bad, just a little worse than Dell's. HP spent $3.5 billion on R&D in 2004, a couple hundred million less than 2003. Marketing and administration costs were triple R&D costs at over $11 billion. If you want to know what the crown jewel is, they have close to 4,000 patents related to printer supplies! Competition in the printer field includes: Lexmark, Epson, Xerox, Canon and Dell.

Growth in the Imaging and Printing group in 2004 actually lagged overall growth in the company, which could be a good sign or a bad sign. The fastest growing group was essentially the consumer PC group. Also, gross margins in 2004 fell to 24.5% from 26.3% in 2003. About 1/3 of HP's business comes from the printing and imaging group, another third comes from the consumer computing sales, the remainder comes from servers, storage and consulting. HP has so much ongoing patent litigation, both as suer and as sued, that I can't put my finger on any especially important case. HP's is looking for a new direction which I'd sum up , "Help our corporate customers control costs, control our own costs, and get consumers to go wild." HP has been buying itself more IT service revenues through acquisitions, which included in 2004 Germany's Triaton GmbH and India's GlobalSoft. HP is a big repurchaser of its own shares, 172 million in 2004 at a cost of $3.3 billion, though it may turn around and give them out to employees in a process of creative dilution If I understand the annual report, stock grants cost them around $750 million in 2004..

I've owned HPQ stock, by way of having bought some Compaq on merger speculation. Worked out, made a few hundred bucks, sold out at a level I believe is higher than HPQ trades now. I suppose I'm more likely to buy some HPQ than IBM or Dell at the moment, but I'd rather get it on a dip than at at the current levels.

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