Between the exit of Mark Hurd and the buying of 3Par ( PAR) and ArcSight ( ARST), Hewlett-Packard ( HPQ) shares have taken a big hit. From a 2011 high of $54.75 shares dropped 30% to close Monday at $38.28. That's just a tad above its 52-week low of $37.32.

Fundamentals have never been better. The first nine months of fiscal year 2010 (ends October 31) have shown earnings of $2.92 versus $2.15 and full fiscal year Zacks estimates now run $4.50 for this year and $5.01 for the next.


Hewlett-Packard (HPQ) One Year
Source: Yahoo Finance



That puts the current year's multiple at 8.5x and the forward P/E at less than 7.7x. Those are lower than the valuation at the exact low in 2002 and close to the P/E right at the March 2009 nadir. Buyers in 2002 saw their shares surge from $10.80 to $26.30 in sixteen months. Intrepid bottom fishers in early 2009 watched HPQ move from $25.40 to $54.75 in just over a year.

Here are HPQ's per share numbers (excluding extraordinary items) as reported by Value Line:


Hewlett-Packard (HPQ) EPS
Source: Value Line



HPQ has peaked at $41.70-$54.75 during each year since 2006. Sales, cash flow, book value and earnings are all higher now than ever before, while the shares remain bargain priced.

Morningstar and Standard & Poor's each assign 4-Star ratings (out of 5). Morningstar sees fair value as $55.00 and S&P carries a 12-month target price of $49.00. Value Line rates HPQ with their highest A++ financial strength with very high marks for stock price stability and earnings predictability.

Why not sell some puts to lock in prices below the 12-month low, while providing immediate income and upside?


Trades: Sell to open HPQ February 2011 35 puts at $1.75, sell to open HPQ February 2011 40 puts at $3.90, sell to open HPQ January 2012 40 puts at $6.50 and sell to open HPQ January 2012 45 puts at $9.55.

At the time of publication, Paul Price was short HPQ puts.

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