Pendulum Swings From H-P to Dell

Hewlett-Packard's strong run may be at an end, while Dell looks set to shake off its doldrums.
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A year ago, everyone loved

Dell

(DELL) - Get Report

and expected

Hewlett-Packard

(HPQ) - Get Report

to languish playing second fiddle. What a difference a year makes.

As of March 1 last year, Dell had risen more than 20% over the prior 12 months while H-P was down 7.8%. It took until Aug. 12 for investors to begin to realize that H-P was a viable turnaround story under new CEO Mark Hurd, while Dell's business was stumbling with disappointing sales figures. Since Aug. 12, H-P has traded ever higher while Dell has settled.

In September, I wrote that Dell was beginning to screen better than H-P. This seemed to be enough of a shift to begin reallocating back to Dell from H-P, but Dell continued lower while H-P continued higher.

Now, however, I believe it is clearly time to reallocate back to Dell from H-P.

H-P is expected to report quarterly earnings per share of 44 cents Wednesday. The company announced Monday morning that it will carve out its portable device business from its notebook division to make it an independent unit. H-P also announced that the latest H-P iPAQ handheld device will be able to receive email wirelessly using Microsoft's new push technology.

H-P is rated a hold by ValuEngine. It's trading about 6.6% over its fair value of $29.56. Since setting a 52-week high of $32.48 on Jan. 20, the weekly chart profile has shown declining momentum, which means that a close this week below the five-week modified moving average of $30.60 would be a chart negative. Investors should reduce holdings if they see this signal, or if the stock rises to my annual risky level of $33.59, which would be a new 52-week high. The risk is to my quarterly and annual value levels of $27.29 and $26.97. H-P held its 200-day simple moving average in March, which is now $26.72.

Dell is expected to report EPS of 41 cents Thursday. After two disappointing quarters in a row, I expect Dell's report to be upbeat given the strong demand for consumer electronics. Dell is rated a hold by ValuEngine. It's 22.7% undervalued, with fair value at $41.14. The weekly chart profile shows rising momentum, with the five-week MMA at $30.55 and the 200-week SMA at $32.95.

Investors should add to this holding as long as weakness holds the five-week MMA. More shares should be bought if it falls to my monthly value level of $26.81, which would be a new 52-week low. The upside is to my monthly risky level at $34.27, then to my semiannual risky levels, $38.59 and $39.45. Dell broke below its 200-day SMA in August. The SMA is now at $34.86.

I believe H-P could decline to its 200-day SMA at $26.72 and Dell could rebound to its 200-day SMA of $34.86. This suggests it makes sense to overweight Dell vs. H-P.

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of

TheStreet.com Technology Report

newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury bond trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --

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