In the chart of HPQ, above, we can see the base pattern that HPQ has outlined the past four months. HPQ is now above the 50-day Simple Moving Average and the slope of the moving average is positive. HPQ has also rallied above the 200-day moving average, but that average has yet to turn up. The coincident to leading On-Balance-Volume (OBV) line is bottoming, and we can see the result of the bullish divergence back in August and September between the lower lows in price and the higher lows from the momentum indicator. This chart also shows that there is some overhead resistance around $15. HPQ will need to push through that area.
This longer-term view of HPQ, see chart above, suggests that the short-term base noted above could generate more of a rally. Here we see that HPQ has rallied above the 40-week moving average, and that there is a bullish crossover from the Moving Average Convergence Divergence (MACD) oscillator. The longer-term bullish divergence from the momentum study is also supportive.
Traders could go long HPQ at current levels, with a stop-loss below $13, and add to longs when the resistance around $15 is broken. The advance could carry into the upper teens.
TheStreet Ratings team rates HP INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
We rate HP INC (HPQ) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is somewhat low, currently at 0.94, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that HPQ's debt-to-equity ratio is low, the quick ratio, which is currently 0.67, displays a potential problem in covering short-term cash needs.
- The revenue fell significantly faster than the industry average of 25.6%. Since the same quarter one year prior, revenues slightly dropped by 8.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Computers & Peripherals industry and the overall market on the basis of return on equity, HP INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, HPQ has underperformed the S&P 500 Index, declining 16.48% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full analysis from the report here: HPQ
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.