HP: Undervalued and Preparing for Apple Assault
NEW YORK (TheStreet) -- In a move that should not come as a surprise, Hewlett-Packard(HPQ) has announced that it plans to eliminate as many as 30,000 jobs or 8% of its global workforce. How it plans to enact these layoffs remains to be seen. Although there are advantages to easing into it and being more deliberate, an option that will take more than 12 months, the company may also decide to conduct its cuts in massive quantities. However, what is certain is that it is once again committed toward raising shareholder value and competing more effectively with the likes of Apple(AAPL) .
As tough as it is to applaud job cuts, from an investment standpoint, the company deserves a considerable amount of credit for what is indeed a difficult decision -- and it would appear that Wall Street agrees by the sudden uptick in the stock upon the news. As conservative as I have been when appraising stock valuations, I will admit that I do tend to get that itchy trigger finger when I see companies that are trading considerably below their fair market value, particularly in the tech sector. Finding these gems not only requires a considerable amount of due diligence, but remarkably, sometimes they are easily overlooked even when they are staring investors dead in the face.
For many, the thinking is, since the market is presumed to be always right, why bother? But this is where investors often make the mistake of confusing "market sentiment" with "value" -- two entirely separate terms. I think this announcement now, along with some recent earnings, currently undervalues the stock by 60%.
Although HP's stock has languished for the better part of the past three quarters, the company's new strategic direction not only makes sense from the standpoint of its competitive leverage within the enterprise against rivals such as Cisco(CSCO) and Dell(DELL) , but HP is now looking to take a bite out of Apple. And it has done this by trying to duplicate Apple's unified platform advantage -- hence the reason for these layoffs.