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Aging tech giants are suddenly enjoying youthful stock gains. Microsoft is up 39% over the past year; Xerox , 33%; and Western Digital , 78%. That compares with a 21% gain for the Standard & Poor’s 500.
Hewlett-Packard (ticker: HPQ) stands out, not just for its 46% rise over the past year, but for its valuation, which remains humble. At 8.7 times projected earnings for the next four quarters, it trades at a 44% discount to the market. By comparison, Xerox (XRX), at close to 10 times earnings, could almost be mistaken for a glamour stock.
“We’ve reignited innovation while aligning our cost base,” says Meg Whitman, now in her third year as CEO. “But there is still more to do.”
There’s much to like about HP’s recent results: Costs are down, debt has been slashed, and free cash flow is plentiful. There’s also much to worry about: Personal computers and printers are in long-term decline; competition in servers is fierce; and overall revenue is slipping, albeit at a slowing pace. On the whole, HP seems poised for further improvement—and could even return to revenue growth in coming quarters. Shares, recently $32.64, are priced for 20% more upside over the next year. They pay a 1.8% dividend yield.
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