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Hewlett-Packard Is So 2008 -- a Good Thing

Stocks in this article: HPQ DELL MSFT

Hewlett-Packard is set to release fiscal fourth-quarter results Nov. 23, a period that didn't include Windows 7's release. In the meantime, analysts are expecting earnings of $1.10 a share, a record for any quarter.

Rivals, such as Dell, should also benefit from Microsoft's latest offering, but HP is the best bet in the computing world. Dell's business revenue is less than 25% of the total. Foreign markets account for about 48% of sales.

As Dell shares gained 14% over the past year, HP tacked on 56% and pays a dividend of 0.7%, while Dell pays none.

HP also is cheaper -- its forward price-to-earnings ratio is more attractive at 11.35 versus Dell's 12.

Hewlett-Packard has doubled its long-term borrowings since last year, but they're still in a reasonable range for a technology company. HP has more than $13 billion in cash and a quick ratio of more than 1, indicating a solid liquidity position.

HP should also get a boost from international operations as the dollar continues to drop. The effect will be less pronounced than it will be at other companies such as Coca-Cola (KO) because of HP's intense hedging. Hewlett-Packard, which conducts more than 60% of its business outside the U.S., hedges interest rates and currencies via derivative contracts with a notional amount of $39.3 billion. Coke's derivative book is valued at about $3 billion. The company had revenue of $31 billion in 2008.

Hewlett-Packard has performed phenomenally well considering the state of the global economy. It's now trading around the pre-crash levels of early 2008. The future looks bright, and HP will profit from higher consumer and business spending. Ratings gives Hewlett-Packard a "buy" recommendation.

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