Canon Inc. (ADR) (NYSE:CAJ) may be a slightly better option due to its more diverse product portfolio and higher yield, but not by much. In addition to business machines, Canon makes one of the most successful lines of digital cameras and their accessories, which initially took a big hit sales-wise when smartphone use became widespread, but are starting to make a comeback due to innovation and evolution of their product lines. In other words, as long as their cameras are significantly better than those that are built into smartphones, Canon’s camera business will indeed be viable. So far they are succeeding…
Canon trades for a slightly higher P/E of 14 times current year earnings, but consider that Canon is a very well capitalized company with about $8 billion in cash and virtually no long-term debt. Compare this with Xerox, which has over $6 billion in net debt (cash minus debt), and it’s easy to understand why Canon might be a more viable long-term investment. In addition, Canon pays a significantly higher 4.27% dividend yield, and is trading well below its 52-week high right now.
Hewlett-Packard Company (NYSE:HPQ) is in the middle of a turnaround effort, which has been successful so far. As a result, shares have more than doubled from their lows of late last year. HP is a leader in PCs as well as printers and copiers, and there is some concern amongst investors about the PC business losing market share to tablets in addition to the concerns about weak printer sales. HP is trading at just 6.9 times fiscal year 2013’s projected earnings, however the company’s earnings are expected to be flat for the next few years, as a true turnaround in the company’s enterprise, printing, and servers and storage technology are expected to take a few years to have any measurable effect on the company’s bottom line.
As far as long-term investments, HP could certainly end up producing the best returns for shareholders if their turnaround efforts are successful. However, at this stage in the game that is a big “if,” and I’m not sure if I want to gamble on it at this point, especially after the recent gains in share price. Xerox Corporation (NYSE:XRX) is a “stay away” as it possesses a lot of red flags such as very high debt load, declining margins, and flat to declining revenues. Canon looks like the best of the three right now, with an excellent balance sheet and their camera business, the only product line of all three companies that is currently experiencing true innovation and evolution.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article There Are Better Alternatives to This Business Machines Company originally appeared on Fool.com.
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