Shares of HP jumped 15% this past week after Warren Buffett’s Berkshire Hathaway disclosed a large stake. Why the stock still looks cheap.
When Bill Hewlett and Dave Packard founded Hewlett-Packard in Palo Alto, Calif., in 1939,
Berkshire Hathaway founder Warren Buffett was eight years old. Eighty-three years later, Buffett added
HP Inc. to his long list of storied investments.
This past week, Berkshire (ticker: BRK.A) disclosed an 11.4% stake in the PC and printer company HP (HPQ), which is not to be confused with
Hewlett Packard Enterprise (HPE), the server, networking, and storage company from which it split in 2014.
You could argue that Berkshire is a little late here. HP’s PC business soared during the pandemic, driving growth to the highest level since the company was split in two; HP’s stock price has doubled since 2019. Meanwhile, there are signs that PC demand is going to slow from here as the stay-at-home trend fades. Analysts at Goldman Sachs, Morgan Stanley, UBS, and Barclays have all turned cautious on the PC sector for just that reason.
As Barron’s has repeatedly noted, HP shares are cheap by almost any statistical measure. In an October 2021 column, I described them as a “screaming buy.” (I’d like to think Buffett read the column.) Even after the stock rallied 15% this past week on the Buffett news, HP shares still trade for a modest nine times expected earnings for the October 2023 fiscal year, and just 0.7 times sales. And HP remains exceedingly shareholder-friendly: Over the past eight quarters, it repurchased 26% of its shares—and it…