Closingbell Gems #12

This Week's Most Undervalued Stock is HP Inc (NYSE: HPQ).

Welcome back to Closingbell Gems #12!

This newsletter will cover:
1. Macroeconomic Highlights
2. Industry Insights
3. Our Undervalued Stock of the week: HPQ (NYSE: HPQ).

Here are the Top 5 Trending Stocks on Closingbell:

🔎 Macro-Watch

Technically.. - The US has officially entered a recession… technically. The consensus used by many curricula and economists has been 2 consecutive declines in GDP growth. 

The White House released a statement stating that we are not in a recession stating that historically low unemployment and real consumer spending amongst other factors from the source NBER, indicate we are not in a recession. What do you think?

Rebound - Stocks bounced back from bear market territory up almost 14% from the lows in June.

The Fed Strikes Again  - The Fed hiked rates another 75 basis points to curb inflation and the steaming hot housing market

🏛️ Industry Insights: Hardware and Technology: PCs and Printers

• Generally, hardware technology companies assemble computers and complimentary accessories and sell utilizing a variety of avenues such as Direct to Consumer (DTC) and through retailers

• With the rise of global warming, HVAC stocks begin to look more appealing (more below)

HP Inc Global (NYSE: HPQ)

HP Inc has a Closingbell Valuation Index of 29% making it relatively undervalued against its peer

About HP Inc (NYSE: HPQ)

Introduction
Formerly known as Hewlett Packard, the hardware technology company split into two different companies in November 2015. The two split companies comprised of HP Inc. (HPQ) and Hewlett Packard Enterprise (NYSE: HPE). HP Inc focuses on computers and printers while Hewlett Packard Enterprise focuses on enterprise products and services.

Differentiator
From its monitors and printers, to its high and low end offerings, the synergy and diversification of its product portfolio make up one of HP’s biggest strengths. 

📈 Price Forecasts by Analysts

The current consensus among 16 polled investment analysts is to HOLD stock in HP Inc.

The 16 analysts offering 12-month price forecasts for HP Inc. have a median price target of $36.00, with a high estimate of $41.50 and a low estimate of $31.00. The median estimate represents a +9.2% increase from the last price of $32.96.

Whale Watch (Notable Buyers)

Berkshire Hathaway CEO: Warren Buffett
Buffett purchased 11.4% of HP Inc. comprising of 121 million shares or $4.2B total making Berkshire the largest shareholder of HPQ

Co-founder of GMO: Jeremy Grantham
Jeremy Grantham is a well known successful British investor and the co-founder of institutional investment management firm GMO. Grantham purchased a net $54.1M in HP or 1.2M shares

HP Inc.
HP has implemented a large buy back program over the past decade, repurchasing over 700 million shares since 2015

Market Metrics and Valuation

Industry 

✅ The low price to earnings and solid dividend yield comparative to its peers makes HP Inc. a solid choice for its value

✅ Given the interest rate environment,  recessionary headwinds, and slowing growth from HP, we have made our DCF assumptions more conservative. Despite the conservative discount and growth rate, there is still a 63.2% upside in intrinsic value

✅ HP comprises as the second most sold PC in terms of market share

Risks to Consider

❌ Revenue has declined from the previous year due to a multitude of factors including shrinking market share and macroeconomic challenges
❌ Sourcing parts with supply chain issues and rising inflation may cause additional headwinds for HP Inc.
❌ No notable M&A activity or extremely promising growth prospects as of recently

📰 Recent Headlines

• HP Press Release: HP Announces Resumption of Share Repurchases

• CNBC: Warren Buffett made about $650 million on HP after stake was revealed

Final Thoughts

Despite headwinds both micro and macro related for HP, the PC and printer maker still holds solid market share consistently placing in second place in terms of computers sold. HP has utilized its strong free cash flow to buy back their own shares and offer a solid dividend. The company has low debt relative to free cash flow and even the blessing of Warren Buffett himself! The combination of the low price to earnings valuation and our discounted cash flow analysis with significant upside make HP Inc. our undervalued stock of the week!

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Miss our episode with Rihard Jarc? Check it out here:

Will Meta OWN the Metaverse?

Thanks for taking the time to read this! See you next week.

Regards,
Luca
CEO, Closingbell

For behind-the-scenes action, follow along here: twitter.com/lucamonk
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Disclaimer: The information that Closingbell provides is general in nature as it has been prepared without taking account of your objectives, financial situation or needs. It does not constitute a recommendation to buy or sell any stock. This email is not intended as legal, financial or investment advice and should not be construed or relied on as such. Closingbell is not responsible for any damages. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Closingbell has no position in any stocks mentioned.