HP Inc – Investing from real value | Digitalization

Investors who follow Warren Buffett may have heard that Berkshire Hathaway recently sold another 3 million HP shares, after previously selling 5 million shares. With these actions, Berkshire’s stake in HP has dropped to 10%.

HP Chairman and CEO Enrique Lores sold 76,000 shares of the company without buying any additional shares over the past 12 months.

Still, HP has a few factors that Buffett might like. HP has a GAAP trailing 12-month price-to-earnings (P/E) ratio of 11.21, less than half the industry average P/E ratio of 24.71. Additionally, HP's projected annual dividend yield of 4.03% is well above the tech industry average of 1.025%. These numbers all make HP attractive.

Now, let’s look at HP Inc’s true value proposition: PCs enhanced with AI. To be the top value option today, HP needs to have a plan to drive future growth. HP can continue to grow if the PC (personal computer) market changes as well.

The tech segment has been on a weak streak in 2022, but according to Mikako Kitagawa, a research director at Gartner, it's clear that the end of the trend is in sight. "There's evidence that the PC market decline has finally bottomed out," Kitagawa said, citing "consistent progress" PC vendors have made in reducing inventory in the third quarter of 2023.

Wamsi Mohan, an equity analyst at Bank of America, seemed undeterred as he upgraded HP's stock to "buy" from "sell" and raised his price target from $25 to $33.

Mohan said that “improved PC prospects and lower restructuring costs will help boost free cash flow” for HP. This is also in line with IDC’s estimate that PC shipments will grow 3.7% year-over-year through 2024.

If the PC market grows as predicted, one key factor that could help HP grow is its tie-up with Nvidia, the market's favorite maker of artificial intelligence chips. HP recently unveiled an artificial intelligence (AI) workstation.

The workstation will “simplify the process of building and customizing in-house AI models and applications,” according to the company. HP also announced that (as reported by Barron’s) it will “deliver the first workstations powered by Nvidia’s AI enterprise software platform.”

HP's valuation looks reasonable and the company pays a pretty decent dividend. Plus, the partnership with Nvidia is valuable. So the best contrarian trade right now is doing the opposite of what Buffett is doing.

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