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TheStreet Open House

5 Stocks Seth Klarman Loves

Hewlett-Packard

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It's fair to say that Hewlett-Packard (HPQ) is the most surprising name on Baupost Group's buy list -- the hedge fund picked up 9.6 million shares of the computer company, nearly doubling the fund's position in the firm to a $128 million stake.

But HP has more than a few headwinds against it right now, particularly given that its unattractive computer business makes up a full third of its sales. In the last several years, computers have largely become commoditized, with consumers comparing the specs of a PC rather than comparing the brand label on it.

>>10 Profitable and Oversold Stocks Ready to Move Higher

While the printer business (namely supplying ink) is attractive, it's only 20% of HP's sales. So why is Klarman buying this stock?

The single shining beacon of hope for HP shareholders is its enterprise arm, both selling hardware and services to corporate IT departments. But there are a couple of problems with that plan. While HP is better situated than most to succeed in enterprise, it faces stiff competition from nearly every other computer firm. They all have the same idea. Couple that with the fact that Hewlett-Packard overpaid for its $13.9 billion EDS acquisition (reflected by a big goodwill impairment charge HP took earlier this month), and the future looks a whole lot less certain.

I wouldn't be buying this firm with both hands right now.

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