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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Hewlett Packard

November 21st 2008 Hewlett Packard
NYSE Symbol: HPQ
Industry: PCs
Price as Nov 21st: $34.64


Cash is King. Investors are scared to touch any stock with large levels of debt, particularly the financials. Two weeks ago we highlighted the big blue chip techs because of their large cash position, little or no debt, and monopolistic control over their industry. This week I'll feature a tech I didn't mention two weeks ago, Hewlett Packard. This past week, HP did the unthinkable. Hewlett Packard actually raised guidance for the quarter and maintained guidance for next year. HP is one of the few stocks up for the week and similar to the other big techs, HP has more cash than debt. In their preannouncement HP said sales have grown 19% year over year which is impressive until you dig a little further. The weak dollar and the $13.8 billion acquisition of EDS this past summer accounted for a majority of the bump in sales, but sales did still grow.
In the next year it's going to be tough for any firm to grow sales with the economy so weak. Instead, managers will focus on cost cuts. The CEO of HP, Mike Hurd has done a great job of cost cutting since taking over for Carly Fiorina several years ago. With the recent merger with EDS, HP and Mr. Hurd have plenty of opportunity for more cost cuts. HP just announced job cuts of 24,500.
Mr. Hurd has done a good job of expanding sales at the expense of their competitors. HP has introduced a new cheap laptop to compete against Apple. HP has shown good results in expanding sales within schools, an Apple strong hold. HP's other competitors, IBM sold off their PC business and Dell is struggling verse their larger more diverse competitor.
HP will lay out their full earnings report on Monday. Currently, the stock is trading for less than 10 times earnings, 0.6 times sales, and two times book.
Another great tech, and my favorite, remains Google. Google has dropped to $250 a share. The company has $14 billion in cash, no debt, and continues to make money. The stock trades for 11 times earnings, 4 times sales, and 3 times book.