Will Hewlett-Packard Finally Get It Together?

As December comes to a close, 2013 is just around the corner, and it's a good time to look at the future prospects for the stocks you own. If you don't know where a company's headed in the next year and beyond, then it's impossible to make an informed decision about whether you should add the stock to your portfolio -- or sell it if you already own it.

Today, I'll look at Hewlett-Packard (HPQ -0.39%). HP has been a member of the Dow Jones Industrials (^DJI 0.42%) since 1997, but the technology company that brought you the scientific calculator has come on hard times in 2012 because of sluggish PC sales and continued difficulties in charting a long-term strategic course. Could HP finally turn things around in the coming year? Read on for more about Hewlett-Packard's prospects for 2013.

Stats on Hewlett-Packard

Source: Yahoo! Finance.

Why is Hewlett-Packard priced for failure in 2013?
Just looking at those statistics, you can easily see that Wall Street pros aren't bullish on HP. It's never good when the target price is 5% below a stock's current price, and a forward P/E of just 4 strongly suggests that analysts aren't sold on the company's turnaround plans.

Amid all the noise, HP's struggle is a conceptually simple one: how to adapt to a changing industry landscape. Like rival Dell (DELL.DL), HP has to keep making the most of a downward-trending PC market while seeking new growth opportunities. But in HP's case, multiple distractions keep popping up, whether it's the Autonomy writedown fiasco or fallout from massive layoffs in an effort to cut costs.

CEO Meg Whitman has already highlighted 2013 as a critical year for HP. But from a product standpoint, Microsoft's (MSFT 0.51%) release of Windows 8 hasn't led to the huge sales bump that HP had hoped for, and the expected launch of an HP smartphone has the company coming extremely late to the game that's already fiercely competitive. Moreover, Whitman's own guidance from October indicated that any turnaround will come slowly, and that announcement has already forced analysts to cut earnings estimates by around $0.90 per share in fiscal 2013 and 2014.

The big wild card for HP in 2013 is whether outside investors will seek to intervene. Much of the recent rebound has come from speculation that Carl Icahn might take a stake in HP or seek other activist remedies to boost the stock's fortunes.

HP's best chance to succeed in 2013 is to follow IBM's (IBM 1.53%) strategy of broadening its sales to emphasize higher-margin areas like enterprise IT services and cloud computing. Those areas are increasingly crowded as well, but unless the company can come up with a huge technological breakthrough in hardware, HP's past strategies aren't likely to pull it out of its current hole.

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