The most notable is Relational Investors. Hewlett-Packard Company (NYSE:HPQ) is the fund’s largest investment, with Relational owning some 34.5 million shares — making up 15.8% of the hedge fund’s public equity portfolio.
Meanwhile Richard Pzena’s Pzena Investment Management also owns over 34 million shares, 5.7% of its 13F portfolio. Other notable investors include Viking Global with 10.5 million shares and Yacktman Asset Management with 9.2 million.
The stock is up 90% year-to-date, thanks in part to the Dell buyout, which gave all PC-hardware investors belief there might still be value to be had in the PC business. But the outlook for PC hardware is bleak, as tablets and mobile devices cut into the PC market share. IDC believes that global PC unit shipments fell 3% in 2012. Hewlett-Packard Company (NYSE:HPQ)‘s turnaround around story hinges on its ability to reduce costs quickly and effectively. But the weak economic environment will serve up other headwinds as well.
Hewlett-Packard Company (NYSE:HPQ) has been one of the top players in the PC market for a number of years, with its market share hovering at around 15%. Going forward, Hewlett-Packard Company (NYSE:HPQ) hopes to focus on the server segment. But the tech giant has vast exposure to the printer market. I think the company will look to spin-off or sell this segment, which could unlock value for shareholders.
The tech decline isn’t limited
Intel Corporation (NASDAQ:INTC) is down nearly 12% over the past 12 months. The tech company is the world’s largest manufacturer of microprocessors, which are heavily tied to PCs. Even still, revenue is expected be down only 1% in 2013.
Offsetting the decline in PC-related revenue should be growth in data-center revenue. Intel Corporation (NASDAQ:INTC) ships some 80% of the world’s microprocessors. Sales of microprocessors and related chipsets for PCs make up 64% of sales, and microprocessors for servers, workstations, and other applications are 20% of sales.
Avoiding hardware
One of best ways to play the tech industry, while avoiding the PC hardware business, includes International Business Machines Corp. (NYSE:IBM), which is a global IT services and software company.
The global operations also help hedge the company. The Americas make up 44% of sales, EMEA (Europe, Middle East and Africa) 31%, and Asia Pacific 25%. The other nice thing is that IBM is looking to boost exposure to the fast-growing emerging nations. In 2012, the BRIC nations’ — Brazil, Russia, India and China — sales grew 7%.
Helping to drive International Business Machines Corp. (NYSE:IBM) over the long term should be a return of IT spending by companies. IT budgets should begin to loosen as companies look to find new ways to utilize technology to decrease costs.
Bottom line
Hewlett-Packard Company (NYSE:HPQ) pays a solid 2.1% dividend yield, where IBM pays a 1.9% yield. Intel Corporation (NASDAQ:INTC) pays the best yield at approximately 3.9%. The Dell buyout action has given hope to HP investors. I am a fan of the HP turnaround, especially with the likes of Relational as a big investor, however, I’m not a buyer at current levels.
HP is trading near 7 times earnings, but when you couple that with analysts’ five- year expected EPS growth rate of 1.7%, the cheap valuation might just be a value trap for now. I do, however, like Intel Corporation (NASDAQ:INTC) for the dividend and International Business Machines Corp. (NYSE:IBM) for its high returns on equity and exposure to the high-margin services business.
The article Is a Turnaround in Tech Possible? originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and International Business Machines. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
