For Hewlett-Packard, Not That Bad Is Good Enough

Is Hewlett-Packard (HPQ) back in the saddle, even as Dell (DELL) keels over in the face of Apple's (AAPL) intergalactic domination of the gadget business? Some folks are voting yes, sending shares of HP up 4% this morning to $21.97 after the company reported better-than-expected second-quarter earnings and full-year guidance, in conjunction with the announcement of a cost-cutting plan. HP delivered a profit of $0.98 per share, beating consensus expectations by $0.07 per share, while revenues came in at $30.7 billion, or 3% above Wall Street's outlook. And while HP's third-quarter guidance trails the Street's estimates, its full-year earnings guidance of $4.05 to $4.10 per share is modestly above consensus. In addition, HP outlined cost-cutting initiatives, including 27,000 pink slips, with a goal of generating annual savings of $3.0 billion to $3.5 billion by the end of fiscal 2014. Essentially, HP is benefiting from low expectations stemming from recent stumbles related to last year's hard-drive shortages and general strategic confusion, as I outlined in my February article explaining why I was going long the stock. (See:

) Obviously, I was too early on slamming the buy button. Technically, I was right on my thesis, but I was dead wrong on price; as it stands now, I'm down 64% on my options-driven HP adventure. So the question I ask myself is this: Should I buy more HP now that it appears to have turned a corner, and now that things are getting less stinky? I'm leaning towards yes. Historically, the financial media (including yours truly) tend to be extremely cautious regarding PC sales ahead of new operating system releases by Microsoft (MSFT), mostly because it's trendy to hate all things Windows (and yes, I hate Windows). Therefore, I suspect that PC sales will outperform expectations after the release of Windows 8, even in the face of Apple's domination of all-things-computing. At the same time, HP is on an upswing in terms of market share, so I would expect investors to start to price in a disproportionate benefit for HP. P.S. I highly recommend that you read

about the fiasco that was the Facebook (FB) IPO. I simply haven't seen a better summation of the mess from top to bottom.