With Meg Whitman at the helm of HPQ is it time to invest in Hewlett Packard? Hewlett Packard is a world leader in printers, personal computers, and servers using Intel chips. It has a long and illustrious history of research and development. Nevertheless the company seems to have lost its way. There were the merger/acquisition of Compaq and the acquisitions of Electronic Data Systems and the software company Autonomy. All of these moves were away from Hewlett Packard model of a research and development driven engineering company. In March of 2000 HPQ peaked at over $75 a share. By 2002 it dipped into the sub $15 a share range and then recovered to the $50 range through much of 2007 to 2009 with a late 2008 dip when the market crash took all stock down. In 2012 HPQ has not done so well and currently trades near $30 a share after a late 2011 flirtation with $20 a share. Although Hewlett Packard is a grand old company with a well-known brand name, anyone who wants to invest in Hewlett Packard needs to do a bit of fundamental analysis in order to decide if the company is due for a rebound or a slow and painful decline.
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Making more printers than anyone else in the world is impressive but it needs to be profitable. The same applies to Intel based servers, personal computers, software development, IT services, networking, and data management. There is always a risk in large companies that they wander off from their core expertise and make acquisitions that do not take advantage of natural synergies. A positive for HPQ is that its EDS arm brings in nearly $40 Billion a year in data management fees. However, the company has cut its R&D in half over the decade to less than 3% of its budget. The data management business stable but growth comes from R&D. Ms. Whitman is reported to be planning an increase in R&D. However, research and development takes time to produce results. The sorts of folks who thrive in R&D and who produce results in R&D are the types who tend to leave companies with uncertain corporate cultures. The repeated changes of direction at HPQ have likely taken a toll and the company will probably need to build up its R&D staff and then leave them alone a bit. Part of the business of picking new winners in stocks is finding companies with innovative personnel and a corporate culture that encourages communication and innovation. HPQ has its work cut out for it. Anyone who would like to invest in Hewlett Packard needs to think through just where the company makes it money, what its synergies are, and if it is headed in the right direction as Ms. Whitman takes charge.
As always we are not suggesting that anyone invest in Hewlett Packard or that investors ignore the company. Consider this little dissertation to be a model for thinking about stocks in general and not just about how to invest in Hewlett Packard or avoid it. The best investing tips commonly have to do with how to evaluate and invest as opposed to advice of precisely when to buy or sell.