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Hewlett-Packard Stock: What a Handful of Big Buyers See

Troubled PC maker Hewlett-Packard (HPQ) is one of the least liked stocks on Wall Street these days, at least among industry analysts that follow the company. They almost universally agree that HP shares aren’t going very far north any time soon. But it has some fans in the funds world.

Dataroma, which tracks buying and selling of some major players, pegs HP as one of most popular fourth-quarter buys in filings so far. Buyers include Wallace Weitz, who runs a value fund in which HP comprised 5.18% of its holdings by the end of 2012. Richard Pzena of Hancock Classic Value added also, and with nearly 5% of his fund dedicated to HP, it’s the biggest holding he had at quarter’s end. Blaupost Group managed by Seth Klarman still makes HP a big part of that fund, but he reduced his stake by nearly half in the third quarter.

HP lost money and respect in recent years as management missteps exacerbated the problems of a slowing PC market. Meg Whitman, called in as CEO to save the place, has made clear that a turnaround will take four or five years, which is a lifetime for a lot of investors. The share price performance reflects the amount of work the company needs, as seen in a stock chart.

HPQ Chart

HPQ data by YCharts

Perhaps those super investors are most interested in HP’s dividend yield, which at times last quarter exceeded 4%. (It’s 3.1% now). Although one-off charges have eaten up earnings that would normally cover it, cash is still flowing, and there’s plenty of it to make the payments. The sale of Autonomy, the software division responsible for a big charge to earnings, will help too. There are apparently a lot of interested buyers around, according to news reports.

HPQ Cash Div. Payout Ratio TTM Chart

HPQ Cash Div. Payout Ratio TTM data by YCharts

Then there’s that ever-present chatter about the board breaking up the company and selling the parts. HP started this supposition itself by announcing in 2011 a plan to do just that. It yanked the idea within weeks, but even the induction of Whitman and her frequent, strenuous insistence that a break-up is off the table now hasn’t kept investors from speculating on just such a move. An announcement earlier this month that competitor Dell’s (DELL) was going private somehow rejuvenated the HP-split speculation. There’s no new news to support or rebut those rumors, but it’s easy to see why investors are intrigued. HP shares are valued at less than the tangible book value of the company, as measured by price-to-book value.

HPQ Price / Tangible Book Value Chart

HPQ Price / Tangible Book Value data by YCharts

That last chart makes HP a fine investment now if the stuff inside the company – PCs, printers, corporate servers and computer services – remains tomorrow worth at least as much as it is today. But there’s the rub. Those PCs, in particular, are of questionable value in a tablet and smartphone world, and they make up almost half of HP sales. It’s hard to know what we’ll be paying for an HP PC in 2014, or an HP share.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.

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