Why Do Hedge Funds Love Dell More Than Hewlett-Packard (HPQ)?

Looking further in this space, we stare straight in the faces of Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL), two of the giants in the tech industry. They are also two of the top ten tech stocks loved by hedge funds (see all 10). Microsoft provides software for PCs and is attempting to gain a footing in the tablet industry, while hoping that Windows 8 sales will be strong over the holidays. Microsoft does not provide robust growth like Apple, but it is a solid value play. Microsoft pays one of the more stable dividends of the tech companies with a 3.4% yield and a 37% payout. Couple this with its 8x forward P/E and solid 9% long-term growth rate and it is easy to see why the stock is a hedge fund favorite. Microsoft calls billionaire Ken Fisher – founder of Fisher Asset Management – as one of its biggest investors (check out Ken Fisher’s newest picks).

Apple, on the other hand, is one of the biggest culprits for the market share losses experienced by HP and Dell. Not only are Apple’s PC products growing in volume, but its tablet and smartphone offerings are decreasing the need for PCs in certain circumstances. Apple is undeniably one of the better opportunities in the market from a valuation and expected growth standpoint. Apple trades at only 9x forward earnings, but boasts a 20% long-term expected EPS growth rate. Apple even appears cheap from a technical perspective, with a major market technician calling for a return to $700 (see more about this bullish call here).

Though it doesn’t receive much hype, Cray Inc. (NASDAQ:CRAY) is one of the best high-growth stories in the computer manufacturing business. The supercomputer company is expected to grow EPS by at least 20% a year over the next half-decade. Shares of Cray are up 125% year to date, though we remain cautious on the tech company given its valuation; it’s trading at 38x forward earnings. Mega-investor Steven Cohen and SAC Capital appear to be unimpressed with the stock, selling off their entire stake last quarter (check out Steve Cohen’s other big bets).

Clearly, the near-term pressures facing major PC makers are not over, and an investment in either Dell or HP would be a long-term market move. With that being said, we believe that the “smart money” is correct on the call that Dell will outperform HP.