Pendulum Swings From H-P to Dell

A year ago, everyone loved Dell (DELL) and expected Hewlett-Packard (HPQ) to languish playing second fiddle. What a difference a year makes.

As of March 1 last year, Dell had risen more than 20% over the prior 12 months while H-P was down 7.8%. It took until Aug. 12 for investors to begin to realize that H-P was a viable turnaround story under new CEO Mark Hurd, while Dell's business was stumbling with disappointing sales figures. Since Aug. 12, H-P has traded ever higher while Dell has settled.

In September, I wrote that Dell was beginning to screen better than H-P. This seemed to be enough of a shift to begin reallocating back to Dell from H-P, but Dell continued lower while H-P continued higher.

Now, however, I believe it is clearly time to reallocate back to Dell from H-P.

H-P is expected to report quarterly earnings per share of 44 cents Wednesday. The company announced Monday morning that it will carve out its portable device business from its notebook division to make it an independent unit. H-P also announced that the latest H-P iPAQ handheld device will be able to receive email wirelessly using Microsoft's new push technology.

H-P is rated a hold by ValuEngine. It's trading about 6.6% over its fair value of $29.56. Since setting a 52-week high of $32.48 on Jan. 20, the weekly chart profile has shown declining momentum, which means that a close this week below the five-week modified moving average of $30.60 would be a chart negative. Investors should reduce holdings if they see this signal, or if the stock rises to my annual risky level of $33.59, which would be a new 52-week high. The risk is to my quarterly and annual value levels of $27.29 and $26.97. H-P held its 200-day simple moving average in March, which is now $26.72.