Russ Cohen

Investor Insights: HP Stock Analysis Unveiling the HP Stock Saga: Buffett’s Exit and Einhorn’s Optimism


The Unprecedented Move

When Berkshire Hathaway divulged its stake in HP Inc. in April 2022, the market was taken aback, as tech-shy Warren Buffett rarely ventures into technology companies. Despite Apple being the conglomerate’s largest holding, Buffett perceives it more as a consumer rather than a tech entity.

At its zenith, Berkshire held over 11% of HP shares, but the conglomerate commenced shedding its HP stake last year, culminating in a complete exit in Q1 2024.

Buffett’s Selling Spree

Amidst a selling frenzy, with six consecutive quarters of net stock selling, Berkshire intensified its selling activities in Q1 by offloading $17.3 billion worth of shares, including trimming positions in major holdings like Apple and Chevron.

Despite Buffett’s disinvestment in HPQ, investors are encouraged to consider retaining this high dividend-yielding stock.

HPQ’s Fiscal Triumph

HP’s fiscal Q2 2024 earnings report surpassed expectations, propelling the stock to nearly hit its all-time high before a slight pullback. Year-to-date, the stock has surged by over 18%, outshining the S&P 500 Index.

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The AI Game

HP’s focus on AI PCs is gaining momentum, with AI PCs projected to constitute 10% of shipments in the latter half of the year and propel significant growth in the following years. While not a conventional AI stock, HP stands to benefit from the rising demand for AI PCs, which are expected to boost average selling prices.

New Players in the Arena

Though Buffett bid adieu to HP in Q1, hedge fund manager David Einhorn entered the fray, banking on the prospects of AI for the company.

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Post HP’s Q2 earnings, various brokerages upped their target prices for HP stock, reflecting renewed optimism in the company’s future.

Analysts’ Outlook

Analysts paint a positive picture for HP, with a consolidated “Moderate Buy” rating. With analysts divided between “Strong Buy,” “Moderate Buy,” “Hold,” and a lone “Sell,” the stock trades above the mean target price.

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While HP faces challenges in its Print business, the prevailing risk-reward scenario for the stock seems favorable, notwithstanding the recent rally.

Final Verdict

Trading at a modest PE ratio and with anticipated EPS growth, HP anticipates robust free cash flows and commits to returning cash to shareholders. Although the dividend yield has slightly decreased, it outstrips the S&P 500 average.

The recent dip in HP’s stock presents a buying opportunity, assuring investors of a favorable risk-reward ratio.