Investing in boring Tech
The hype around the FAANG stocks has its merit. But given the dizzying valuation of these components of the NASDAQ, some investors might think that hype is overblown. If you are in that camp, then here are a couple of “old school” tech names that you might want to consider.
The bore and the beautiful
The splitting up of the formidable tech giant Hewlett-Packard Company on November 1, 2015, into primarily a personal systems and printing and related solutions entity HP Inc (HPQ) and an enterprise technology solutions provider Hewlett-Packard Enterprise (HPE), was a watershed event for many technology investors. I myself was torn over making a choice between owning HPQ or HPE – or both. So, I played it “safe” and bought neither!
The recent announcement by HPQ to acquire Apogee Corporation, one of the largest providers of printing, document processing and outsourced technology and services in Europe’s, got me to thinking about these two entities in a different light. And the more I looked, the more I liked what I saw.
The Investment Thesis
When the two entities began trading on November 1, 2015, HPE closed the day at $14.49 (down by $0.50 from its opening price), while HPQ closed at $13.83 (up by $1.36 from its opening price). Over the past 1000-days or so since the big split, both companies have performed remarkably well, considering how crowded the tech space has become. But by-and-large, they’ve stuck to their knitting, and that’s what makes them investments worth considering for anyone looking to get into the tech sector.
While HPE has focused on the needs of the corporate sector, HPQ has fixed its attention on Small and Medium Enterprises (SMEs) and personal consumers. In fact, HPQs Instant Ink Subscription service has transformed the company into a hybrid Tech-Consumer Staple (since I look at printer ink as a business/household staple these days!) company.
Once you buy an HP printer (for your business or the home), your printer will automatically let HP know what your usage patterns are, and when you are about to run out of ink, and which colours you mostly use – and it will automatically place an order.
Meanwhile, HPE has made inroads into Cloud services, which puts the company in a position to offer cutting edge technology solutions to its larger corporate clients. Their HP Managed Print Services (MPS) is also a neat offering that integrates various enterprise services to manage digital document flow throughout an organization.
It’s evolutions like these that make me think HPQ and HPE are worth adding to a diversified portfolio.
Follow the Pros…and the money
Wall Street Journal showed HPQ had an Uptick/Downtick Trade Ratio of 1.06, at the time of this writing, while HPE boasts of a ratio of 4.71. While these numbers change almost constantly, the important thing to note is the direction in which they are flowing. This metric provides investors a snapshot of money flows entering/exiting from a stock. A reading above 1 indicates relative higher buying than selling, while anything less than 1 indicates more selling activity than buying. Clearly, investors are putting money into both names.
Barrons has both HPQ and HPE consensus rated as Overweight. NASDAQ analyst’s recommendations for HPQ and HPE are inching into moderate to Strong Buy, while Yahoo puts both HPQ and HPE in the Buy category. Both Maxim Group (Hold to Buy) and JP Morgan (Neutral to Overweight) have upgraded their views on HPQ and HPE recently.
HPQ is expected to report its Q3 (for the period ending July 2018) results on August 23, and analysts expect it to produce an EPS of $0.5 (compared same quarter last year of $0.43). HPE will follow suit on Sep 4th, forecasted to deliver EPS of $0.38 ($0.31). While neither forecast is mind-blowing, they are still performance beats compared to previous year same-quarter results. And that’s what investors are looking for.
Based on the above thesis, it would seem obvious that owning either (or both!) HPQ and HPE would make complete sense.
If you would have taken a leap of faith back in November 2015 and invested in either of them, you’d be sitting pretty today! And if you would have taken positions in both names, your portfolio would be up a cool 79.75% today – excluding dividends.
Owning a basket of competitors over that same duration, however, wouldn’t have rewarded you as well as your HPQ and HPE holdings. However, if you were playing the EITHER/OR game, then my bet would be on HPQ (over HPE). Over the past 180-days, HPQ has delivered a return of nearly 10% (1.02%) to its shareholders.
Hewlett-Packard is an interesting investment but these MUST BUY Stocks are set to soar
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Author does not have investment in stock discussed in this article.