Top Turnaround Stock For 2014 [Hewlett-Packard Company, Microsoft Corporation, International Business Machines Corp., Intel Corporation]

investingMarshall Hargrave: Tech stocks are in crash mode. The NASDAQ is down nearly 5% over the last month. Investors are trading in growth tech companies for value names. But as tech investors make that transition, they’re also turning to turnaround stories.

Some of the names that investors have been rallying behind are IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).  All of these stocks are up over the last month.

HP: The Top Turnaround Stock

But the name that’s up the most is Hewlett-Packard (NYSE: HPQ). HP’s stock is up 14% year to date, versus a NASDAQ Composite that’s down 2%. Are investors finally listening to the HP’s turnaround story?

It appears so. But shares of HP are still down nearly 40% over the last four years. And HP is very cheap from a valuation standpoint.

It’s a cheap stock that generates stacks of cash every quarter. Last quarter it added $4 billion to its cash hoard. Leading to a near 30% boost in its cash pile from the previous quarter.

Many investors see the declining PC industry as an overhang. Hence the reason HP still trades at a hefty discount, compared to some of its major tech turnaround peers.

But the fact that the PC market is in decline is no secret. So what’s the market missing?

Hewlett-Packard has already gotten a nice boost in its stock price thanks to the growth of PC shipments during the first quarter of this year. The stock’s now trading close to their 52-week highs.

It’s not unreasonable to believe that the decline in PCs will eventually plateau. The penetration of tablets is already at 50%, where half of all U.S. households own a tablet. At some point, spending could shift back toward PCs as homes look to upgrade their current devices.

And the decline in PCs has been slowed by Microsoft ending its support of the XP operating system. As a result, businesses are replacing their old PCs with new ones.

Europe, the Middle East and Africa are also seeing growth in PC sales. The penetration rate of PCs in these countries remains below developed nations. And after eight quarters of PC sales declines, sales in EMEA grew during the first quarter of 2014. HP is the market share leader in this region, owning 19.9% of the market.

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