Hewlett-Packard (HPQ): Will This Tech Giant Be Able to Sustain Its Momentum?

A nearly 60% rally so far this year hasn’t been of much help to long-term investors in Hewlett-Packard Company (NYSE:HPQ) , with the stock still down over 50% from its levels in early 2010, but it has been quite welcome to any who bought the stock recently as HP fights to be one of the top-returning large cap stocks of 2013.

Technology hardware businesses have not done well recently, hitting not only Hewlett-Packard Company (NYSE:HPQ) but also companies such as Dell Inc. (NASDAQ:DELL) . While those which made an earlier transition to focus on software and services, which HP is currently in the process of doing, have seen somewhat better fortunes. International Business Machines Corp. (NYSE:IBM) is an one example of this.

The first quarter of Hewlett-Packard Company (NYSE:HPQ)’s current fiscal year ended in January. While the company reported a 6% decline in revenue compared to the same period in the previous fiscal year, and earnings were down 16%, these numbers easily beat analyst expectations. As a result, the stock went up strongly on the day.

HP’s internal guidance centered on $3.50 in earnings per share for the fiscal year, and the Street has essentially adopted that figure as its own target. This makes for a current-year P/E multiple of 7, and even though HP has been declining, if it can moderate the decreases in earnings, that price is cheap enough that it could be a good value.

Renaissance Technologies, whose founder Jim Simons is now a billionaire, increased its holdings of Hewlett-Packard Company (NYSE:HPQ) 12% in Q4 to a total of 4.9 million shares (see Renaissance’s stock picks). Ralph Whitworth’s Relational Investors had HP as one of its five largest holdings at the end of December, according to that fund’s 13F filing.

Yacktman Asset Management, managed by Donald Yacktman, was another major shareholder during the fourth quarter of 2012, maintaining a position of almost 11 million shares. Our interest in hedge fund holdings is driven by our findings that the most popular small cap stocks among hedge funds have outperformed the market by 18 percentage points per year, despite the lag between actual investment and the date at which they are filed.

We have already mentioned Dell and IBM as potential peers for Hewlett-Packard Company (NYSE:HPQ). Dell, fielding buyout offers from a number of parties, experienced double-digit percentage declines in both revenue and earnings in its most recent fiscal quarter. Investors certainly have considerable upside if a deal is done, and bids might increase over time if multiple parties remain interested in Dell.