Best Computer Hardware Stocks To Buy Now

Key Insights

  • Computer hardware stocks are trading at attractive valuation levels. 
  • Markets are worried about demand after the end of the pandemic. 
  • However, some stocks have already started to rebound as they look too cheap to ignore. 

The computer hardware segment has been under pressure since the beginning of this year as traders were worried that PC demand would decline after the pandemic. Indeed, analyst estimates for the stocks in this segment have started to move lower in recent months. However, some stocks are trading at reasonable valuation levels and may attract speculative traders.

HP

HP   stock has recently attracted traders’ attention after Berkshire Hathaway reported an almost 10% stake in the company.

Analyst estimates have been mostly stable in recent weeks. Currently, HP is expected to report earnings of $4.27 per share in the current year and earnings of $4.39 per share in the next year, so the stock is trading at roughly 8 forward P/E, which looks cheap in the current market environment.

The key question is whether analyst estimates start to move lower due to the worries about the health of the global economy. If earnings estimates remain stable, HP stock may get more support.

Western Digital

Western Digital stock is down by more than 20% year-to-date. Analyst estimates have been moving lower in recent weeks, and the company is expected to report earnings of $8.97 per share in the fiscal 2023. Thus, the stock is trading at less than 6 forward P/E, which is certainly cheap.

The company’s valuation looks attractive, and the stock has started to rebound despite the general market sell-off. This rebound would continue in case the company’s quarterly report, which is scheduled to be released on April 28, exceeds market expectations.

For a look at all of today’s economic events, check out our economic calendar.

HP Is Up By 17%, Here Is Why

Key Insights

  • Berkshire Hathaway buys a stake in HP. 
  • The stock rallies as Buffett’s purchases typically provide significant support to stock in the near term as other investors rush to buy shares. 
  • In the longer run, traders will focus on post-pandemic dynamics of demand for HP products.

HP Stock Rallies After Buffett’s Berkshire Hathaway Discloses A Stake In The company

Shares of HP  gained strong upside momentum after Berkshire Hathaway revealed that it had purchased an almost 10% stake in the company.

Buffett’s purchases typically move markets, so it’s not surprising to see that HP shares are up by more than 17% in today’s trading.

It should be noted that the stock has found itself under material pressure at the end of March after it was downgraded by Morgan Stanley. Analysts believed that hardware budgets would be cut in 2022, while demand would slow down as the world recovers and gets back to normal life after two years of the pandemic.

However, Buffett is not worried about short-term challenges, and he is ready to bet that HP would show growth in the years to come.

What’s Next For HP Stock?

Currently, analysts expect that HP will report earnings of $4.29 per share in 2022 and earnings of $4.43 per share in 2023, so the stock is trading at 9 forward P/E. The expected earnings growth does not look impressive, which explains the cheap valuation of the stock.

However, Warren Buffett and his team at Berkshire Hathaway are famous for taking a long-term view, so they are certainly not worried about near-term fluctuations of the company’s earnings.

Buffett’s purchases are followed by an army of investors who would also buy the stock, so HP may continue to move higher in the upcoming trading sessions. However, it remains to be seen whether the impulse from Buffett’s purchase will be sufficient enough for sustainable upside momentum in the near term as the risks from declining demand are real.

For a look at all of today’s economic events, check out our economic calendar.

Why HP Stock Is Down By 6% Today

Key Insights

  • Morgan Stanley cuts its outlook for PC sales and downgrades HP and Dell. 
  • The demand boost from the pandemic may be over, and PC sales could get back to the previous downside trend. 
  • HP stock may need additional upside catalysts to get back to recent highs near the $40 level. 

HP Stock Is Under Pressure After Analyst Downgrade

Shares of HP gained downside momentum after Morgan Stanley downgraded the stock due to expectations of weak PC sales. Dell was downgraded as well.

Morgan Stanley believes that hardware budgets could be cut, which would hurt HP sales. In addition, demand could slow down as the world gets back to normal after two years of pandemic, which boosted PC demand.

The market reacted nervously to the analyst downsgrade, and HP stock moved from the $40 level to the $36 level.  Yesterday, HP stock made an attempt to settle above yearly highs, but the downgrade has clearly hurt the positive momentum.

What’s Next For HP Stock?

Analysts expect that HP will report earnings of $4.28 per share in the current year and $4.43 per share in the next year, so the stock is trading at just 8 forward P/E, which looks cheap for the current market environment.

However, Dell is even cheaper at 7 forward P/E, so the market does not have too much appetite for computer hardware stocks.

In this environment, worries about slowing demand may ultimately put more pressure on HP stock. Companies and individuals that have upgraded their hardware in 2020 – 2021 may not rush to renew it, and PC sales may get back to the previous downside trend.

This is a material risk for HP stock, which may need additional positive catalysts to get back to recent highs. At the same time, the current valuation levels may provide some support to the stock in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

Big Money Backs HP

And the personal computing firm could gain more due to big recent earnings, a strong dividend, and stock repurchase plans. But another likely reason is Big Money lifting the stock.

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And HP has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals HPQ has made the last year. It’s received Big Money attention for many years.

The last few months have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Source: www.mapsignals.com

In the last year, the stock attracted 11 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, HP has been growing earnings and sales at double-digit rates. Take a look:

  • 1-year sales growth rate (+12.7%)
  • 3-year EPS growth rate (+42.4%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, HPQ has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

HPQ has a lot of qualities that are attracting Big Money. It’s made this list nine times since 2009, with its first appearance on 06/22/2009…and gaining 171.67% since. The blue bars below show the times that HP was a top pick.

Source: www.mapsignals.com

It’s been a top stock in the technology sector according to the MAPsignals process. I wouldn’t be surprised if HPQ makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

The HP rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus it pays a current 2.75% dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds no positions in HPQ at the time of publication.

Learn more about the MAPsignals process here.

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