HP, Inc.: I'm Buying This AI Bargain With A 4% Yield Before The PC Upgrade Cycle Kicks In

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HP Inc. stock has potential for growth, as indicated by a recent pullback and a bullish "Golden Cross" formation on the chart.Analysts expect strong earnings and revenue growth for the company in the ...

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JasonDoiy/iStock Unreleased via Getty Images HP Inc. (NYSE:HPQ) is a leading maker of personal computers, printers and other related items. This stock has languished compared to other tech stocks and it has been thought of as boring, much like Microsoft (MSFT) was just a few years ago. However, it looks like things could get much more exciting in the coming years, and what seems to be confirming this new potential excitement is the recent disclosure that a hedge fund billionaire has been buying this stock. Let's take a closer look: The Chart  As the chart below shows, there has been a recent pullback in this stock which is a potentially ideal buying opportunity. This stock was trading for around $31 in March, but it now trades at around $28. The 50-day moving average is $29.16 and the 200-day moving average is $28.85. It's worth noting that since the 50-day moving average crossed over the 200-day moving average earlier this year, a bullish \"Golden Cross\" formation has appeared on the chart. However, it is at risk of losing this bullish formation if the stock doesn't rebound back over $29 in the coming weeks. Stockcharts.com Earnings Estimates And The Balance Sheet  Analysts expect this company to earn $3.43 per share in 2024, with revenues coming in at $53.65 billion. In 2025, earnings are expected to rise to $3.65 per share, with revenues at $55.6 billion. For 2026, estimates are at $3.78 per share, on revenues of $57.13 billion. These estimates suggest a price to earnings ratio of just over 8 times for 2024, and even lower going forward. That is a very undervalued level for a leading tech company to be trading at, especially since many tech stocks are trading for much higher multiples, even ones that are not growing fast such as Apple (AAPL). As for the balance sheet, this company has about $9.301 billion in long term debt and $2.42 billion in cash. This is a solid balance sheet, but I would like to see more of the debt paid off to strengthen it even further. A Hedge Fund Billionaire Is Buying  David Einhorn is a hedge fund billionaire who recently disclosed he is buying shares of HP, Inc. His bullishness comes from the potential of AI, which could help fuel a PC upgrade cycle. A Seeking Alpha article points out that his average price is $30.76, which is about 10% above the current share price. David Einhorn thinks HPQ could could buy back up to 30% of the shares over the next 3 years and the article goes on to state: \"The more exciting opportunity is through a possible AI-driven PC adoption cycle, fueling higher unit prices and a more robust PC market recovery,\" Einhorn added. \"While we have spoken with experts that are divided between being enthusiastic and skeptical on the AI PC cycle, we don't believe any of the optimism is currently reflected in the share price.\" The PC Upgrade Cycle  The PC upgrade cycle could be a big one and driven by the desire for a PC that has new AI-embedded features which are expected to become increasingly available on new PC's. But the PC upgrade cycle could also gain significant traction in 2025, because Microsoft (MST) has announced it would retire Windows 10 on October 14, 2025 and the end of support for Windows 11 on November 11, 2025. Between the desire for new AI-enabled PC's coming out, and this upcoming end of support for Windows 10 and 11, it's going to make a lot of sense for many businesses and consumers to buy a new PC in 2025. Some analysts expect strong sales for HP, Inc. in the second half of 2024, driven in part by back-to-school purchases. This is also when some AI-enabled PC's should start becoming more readily available. I think all of this suggests that strategically it makes sense to buy this stock on any pullbacks during the first half and that this might reap rewards in the second half of this year and beyond. The PC market is expected to grow 7% in 2024, and 10% in 2025. This is a great tailwind for this company going forward. The Dividend And Share Buybacks  HP, Inc. pays a quarterly dividend of $0.2756. This totals just over $1.10 per share on an annual basis and it provides a yield of nearly 4%. The dividend has more than doubled since 2018, and it has room to continue growing thanks to a payout ratio of less than 32%. In addition to the dividend this company is also shareholder friendly in terms of share buybacks, as shown below: HewlettPackard.comHewlettPackard.com Potential Downside Risks  The PC business is competitive and doesn't have the same high margins as other tech businesses such as software. However, this company has been dealing with these pressures for years and it remains a leader in the industry. A major recession is probably the biggest potential downside risk, as it would dampen both consumer and business IT spending. This company is party to a number of patent and other legal claims that are pending, which could be a potential downside risk to consider. It also has many other competitors which might take market share or reduce profit margins through discounting. For example, Dell Technologies, Inc. (DELL) is expected to be a competitive threat in terms of AI-enabled computers, and they could be difficult to challenge, mostly in terms of small to medium-sized businesses. However, I do think that HP, Inc., will do very well selling to consumers for at home use and to students. HP, Inc., also faces challenges from foreign exchange risks which could present downside risks in terms of product pricing and with financial assets that are held in foreign countries.  In Summary  HP, Inc. has many positives, the price to earnings ratio is extremely low (suggesting undervaluation), it has strong potential for growth with a PC upgrade cycle, and it could also be a major beneficiary with AI. It also pays a dividend of nearly 4% which has a history of growing. With such a generous yield, this stock is offering income that is not far below what money market funds currently pay. With interest rates likely to decline in the next couple of years, this stock could see upside as investors get more hungry for yield in the future. With this company having a clear AI tailwind, plus other positives, it seems like it is only a matter of time before this stock gets re-rated to a higher price to earnings multiple, and that along with the nearly 4% yield could provide excellent total returns over the coming years. With all these positives, it is easy to see why this stock has attracted the attention of a hedge fund billionaire.  No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. 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