Though HP gets chronically punished for being in a leader of a dying PC industry, the punishment grows solely for the fact that it is not Apple (AAPL). But it doesn't have to be. The company is working hard to discover ways it can be the best HP possible, a model that is more realistic and reflective of what the company already does well.
With the stock trading at $18 with a forward P/E of 4, the market seems to think that HP will never be able to recover from past mistakes. Then again, the market also expected very little from Apple until it reinvented itself and unveiled the iPod. HP, whose slogan is "invent" must figure out a way to do just that. But until then, the shares look very cheap and one has to wonder, since there is very little risk at these levels, the potential reward more than trumps any possible downside.
Another stock within the sector that I like a lot is Brocade. There is a lot to like with the company's business and, in particular, its management who consistently shows that its main objectives (among other things) include broadening the company and lessening dependency on its storage business.
Brocade's most recent earnings report not only showed that margins are trending in the right direction, but the company continues to be underestimated when it comes to discussing its preparation for the cloud.To that end, Brocade has taken a slightly different approach toward organization and deployment. It seems the company understands that networks must be cloud-optimized at every critical point because companies will define not only the application performance but, more importantly, the end-user experience. So far that strategy has been working perfectly -- perhaps too perfect as it has now drawn the attention of several rivals. From an investment standpoint, the stock may not provide the type of premium potential that Cisco and HP may present, but there is still a lot to like. In fact, I still suspect Brocade will be the target of a possible acquisition at some point in the next year six to 12 months. My candidate remains Cisco. With its cloud and networking strategies in alignment, a Brocade acquisition presents excellent synergies, too many to overlook.
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