An Insider Bought Shares of HP

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HP’s challenge has been to try to shift its business away from hardware- particularly as demand for personal computers has fallen- into software and services. So far it hasn’t been successful, and neither has Dell Inc. (NASDAQ:DELL), which billionaire David Einhorn recently abandoned after deciding that the company would not be able to make this transition (see what Einhorn has been buying instead). Dell’s earnings were down 47% in its most recent quarter versus a year earlier, and it trades at 6 times forward earnings estimates as the market is a bit more optimistic about that company than HP. If an investor wants to get into this industry, Dell might be a good alternative to HP. However, we think that we’d rather pay a premium for International Business Machines Corp. (NYSE:IBM), which has managed to hold its net income about steady as that company has a more substantial software and services business. IBM’s forward P/E is 11, but we’d consider it a safer investment and that valuation is still low enough that it would probably prove a good value.

Of course, the shift away from personal computing also poses threats to companies such as Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC), and has driven chipmaker Advanced Micro Devices, Inc. (NYSE:AMD) down about 60% in the last year. Microsoft and Intel were on our list of the ten tech stocks hedge funds are crazy about for the third quarter of 2012. Intel might be worth considering, while in Microsoft’s case it’s probably best to wait until there is more information about how the company’s new products are selling.

The insider purchase at HP is notable, but we still think that the company and Dell are too risky until they show signs of halting their decline. IBM, at least, seems to have done a better job anticipating and weathering industry trends and looks to us like a better buy.

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