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Pressed by a string of disappointing earnings and an unsettled high-tech market Hewlett-Packard (NYSE:HPQ) stock is trading south of $13, near its 2001 low, and a long way from its all-time high of $70.
Hewlett-Packard's stock has been hurt by a number of strategic mistakes that wasted the company's resources and talent.
In 2001, Hewlett-Packard made the first one, purchasing Compaq Computer – which was supposed to provide the company with the scale advantage in the PC market to compete effectively against Dell Computer, International Business Machine (NYSE:IBM) and all sorts of emerging Asian competitors.
The problem, however, was that the PC market was already saturated and ravaged by price wars, as the PC was turning into a "commodity" to be replaced by tablets.
Besides, Compaq Computer itself didn't have an internal innovation system, but it relied on external acquisitions to expand its product portfolio (buying up Tandem Computer, and Digital Equipment Corporation).
In April 2010, Hewlett-Packard made the second strategic mistake -- it purchased the near-bankrupt Palm, which was supposed to help the company enter the fast growing market for mobile devices that was beginning to replace PCs.
The problem, however, was that Hewlett-Packard was a follower rather than a leader in this market, going against Apple -- which enjoyed the first-mover advantage in this market.
Last year, Hewlett-Packard made the third mistake, announcing the acquisition of enterprise software maker Autonomy (at a hefty price of $10.3 billion). Why? This move will pit the company against three major competitors, Salesforce.com (NYSE:CRM), Oracle (NASDAQ:ORCL), and IBM.
Aren’t these mistakes already reflected in the value of the stock, however? Is it time to buy Hewlett-Packard?
It depends on the investment horizon of individual investors. Short-term investors may want to stay away from the stock, for two reasons.
First, because of end of the year selling by professional money managers who are embarrassed to hold a stock that has lost close to 70 percent of its value over the last 12 months.
Second, a bearish chart. The stock continues to trade below its 200 and 100 moving averages.
However, long-term investors may want to begin accumulating the stock, betting on Meg Whitman's turnaround plan. Especially on three strategic initiatives she has taken.
First, the paying down of the company's debt before it becomes unmanageable.
Second, the shift from an external to an internal innovation model - a major departure from the policies of its predecessors. That’s a policy, which has worked for other technology companies like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).
Third, the opening up of the company's operating system WebOS to the applications development community. This move provides HP the chance to challenge the dominance of Google's Android system, especially if Android becomes a closed system after the integration of Motorola Mobility with Google (NASDAQ:GOOG).
The bottom line: HP is an appealing bet for long-term investors, who have faith in Meg Whitman’s plan to turn the company around; and want to collect a hefty dividend (3.77%) while waiting.
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