For HP Investors, Now Is the Time

NEW YORK ( TheStreet) -- Call me crazy, but despite the prolonged struggles of tech giant Hewlett-Packard ( HPQ), I still like the prospect of the company -- better yet, I love the outlook of a possible turnaround story that I believe still exists.

Call it delusional or even a case of emotional attachment. However, when assessing the value of the stock, astute investors need to ask themselves one very important question -- If you don't like HP now, when will you ever? The answer is, when it no longer makes sense. Because now is the time.

The company is chronically punished for being a leader of a dying PC industry -- I get that. What's more, the dominance of Apple ( AAPL), Google ( GOOG) and Amazon ( AMZN) continues to turn what used to be a good "glass-half-full" narrative for HP into more of an "empty glass."

However, HP does not have to be Apple to be good. It just needs to figure out a way to be a better IBM ( IBM) -- a model that is more realistic and reflective of what the company already does well. It only needs a little bit more time -- a commodity that investors would be wise to use their advantage.

Making a play on the stock at these levels might be a smart move. At $17 the stock should easily trade north of $20 by the end of the year. With a price-to-earnings ratio of 6 it is clear that Wall Street continues to expect very little from HP, suggesting there is little risk in the shares at the moment.

After all, it is very rare to find the combination of value with minimal downside exposure. This is what the stock now offers -- even though the company's recent earnings report let some of the air out of its sails.

But then again, HP was no speedboat to begin with. For the most part, the company delivered precisely what was expected -- very little.

In its recent third-quarter earnings report for the period ending in July, HP logged a loss of $8.86 billion which includes a writedown of its enterprise-services unit. It met its earlier profit guidance of $1 per share on revenue of $29.7 billion which met analysts' expectations. In looking at its divisions, sales dropped 3.1% in its services business to $8.75 billion while its printing business retraced by 2.7% to just over $6 billion.

The company also suffered some weakness in its servers, storage as well as network equipment businesses where it competes with the likes of IBM, EMC ( EMC) and Cisco ( CSCO) respectively. As disappointing as these revelations may be, its network division continues to be somewhat concerning since Cisco continues to show improvement in that area. On the positive side however, the company's software division soared by 18%.

However, what came as no surprise to anyone particularly since Dell ( DELL) had already issued its own report, was the prolonged weakness in the company's PC division which saw a 10% decline in revenue -- lending further support that Apple, Google and Amazon are winning the battle of the mobile devices. In terms of outlook HP now expects full-year net income excluding some items to now arrive at $4.07 per share, 3 cents lower than its earlier forecast and missing analysts' average estimates by penny.

Over all, investors were not pleased with these results and have sent shares down as much as 8%. What continues to be ignored is that HP is only a year into fixing mistakes that have led to its slumping growth over the past several years, including not only failed acquisitions such as Palm and EDS, but also missing significant opportunities in the smartphone and tablets race.

What's more, with the help of its long-time partner Microsoft ( MSFT), with which it shares a mutual enemy in Apple, the company is betting heavily on the success the upcoming launch of Windows 8 as a way to dispel exaggerated notions of PC deaths.

Additionally, as a way to ignite profitability while meeting goals of efficiency, the company is now in the midst of a cost-cutting strategy that should save it an estimated $3 billion over the next several years.

As early as the end of October, the company says that its headcount will be reduced by over 11,000. What it saves as a result of these reductions will be reinvested in new employee software, cloud services as well as storing some of that cash should it find ways to spur profitability.

The company has begun to do this by consolidating both its printing and PC businesses, which, combined, have accounted for $65 billing of its revenue last year. In addition to reducing its CAPEX, this is certain to make the company more nimble while improving its ability to innovate and produce products that appeal more to consumers.

By the time investors decide they like HP, it will likely be too late and the "value window" would have closed. At some point we have to realize that "value and high expectations" don't always go together. Apple's history notwithstanding, not every stock is able to meet both criteria.

However, if investors are waiting to buy HP after signs that PC growth has been reignited -- that's not going to happen. Instead, consider that with a forward P/E of 4, there is very little expected for HP. Apple was in a similar situation 10 years ago.

Under its current reorganization, investors should take notice that not only is HP poised for possible growth over the next four years, but it has now positioned itself to increase its profit margins in a relatively short period of time.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.