Hewlett-Packard Co (HPQ)

In 2010, 2011 and 2012, the stock was negative. After taking 3 years of a beating, the stock started to bounce back and has had a pretty good year. He is still not quite sure which way they want to go with the business. They have given direction that they want to transition from being a hardware business to software. Over 50% of their revenue still comes from the PC space, which is not a space he wants to be in, as he owns their competitor Apple (AAPL-Q).

Trying to get ahead with this one is a tough go. The CEO has done a good job, but a good job with a bit of a mess. Have been very poorly managed at the board level and have made some really bonehead moves.

Trading at less than 10X earnings. No net debt if you don't count the financing debt they use to finance equipment. Huge free cash flow generation. Company has returned to earnings growth. Thinks revenue growth will start next year. It will become a growth story again, to some degree, trading at an incredibly cheap valuation, probably $4 a share in the next couple of years. Recently announced they are going to split into 2 pieces, probably in 2015. Thinks this is a $50 stock. Yield of 1.78%.

This is supposedly splitting into 2 companies. He doesn’t know if this is good or bad. A lot of their products are commoditized, and that is why they are focusing the printing division into a separate company. You might see this happen to a lot of large computer styled companies. Prefers others.

(Market Call Minute.) Has already had a pretty good run.

Good management. One of the core themes in this market right now is old tech. The market likes cash flow generation, predictability, strong balance sheet, and is not necessarily looking for rocket fuel. This company generates about an 8% free cash flow yield, which is very attractive. No growth, but sort of a restructuring story. If they can get some growth because the economy is getting a little bit better, this could do very well.

This is a company that is in “repair mode” and whether it gets to a point of really being a growth stock again, is up in the air. Wait for more information. He would be willing to pay a higher price for more certainty in situations like this.

(Market Call Minute) Old technology is a key theme in the market. Strong free cash flow generator and good dividend growth.

He sold, but he now believes in the turnaround story. Management is executing on the plan. 8 times earnings and a dividend yield. Eventually you have to see top line growth and that will come. As long as management continues to execute the stock will continue to do well.

He doesn’t know where they go from here. They have to reinvent themselves. There is a lot of volatility in the stock.

Not really a growth company so would not show up on his screens. This is a turnaround story.

An old-school tech company. A lot of headwinds. It’s a tough go. It was priced for extinction and had a tough time a year ago. It is slowly getting back into order. At the multiple it is trading at right now, there are companies out there that will give you better growth and give you more safety and are newer technology as opposed to the older.

People have to eventually realize this is not just a PC company. Certainly cheap on a PE basis. Had a big write off a little while ago which knocked the Book Value down but their return on equity is high, PE is low and if you get some nice returning confidence into the high tech sector, then this remains fairly cheap, about 1.5X BV.

Doesn’t think there is that much room left to run. He was shocked when it got down to $12 last year. The growth has now been reflected in its move. They are in businesses that are in a lot of trouble. Probably 60% of their businesses are really shrinking.

(A top pick Jan 30/13. Up 76.68%.) Have 4 major divisions and he broke each of these down with the premise that PCs would go to zero. Figured that the IT outsourcing business alone was worth the entire stock price at that time and on a breakup value this would be a $45 stock. Still sees plenty of upside here.