Are Those Pigs Flying? Hewlett-Packard Shares Rally 54% YTD, Intel’s Go Nowhere

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Investors are suddenly very optimistic about personal computer maker Hewlett Packard (HPQ), apparently shaking off worries that its key product is going the way of fax machines. So why isn’t Intel (INTC), the world’s biggest supplier of chips for said old school computers, getting any of this big love? Hewlett Packard shares are up some 50% this year; Intel’s have barely moved, as seen in a stock chart.

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HPQ Chart

Considering conventional measures, Intel looks far and away like the better long-term investment. Unlike Hewlett Packard, Intel makes money -- about $11 billion in the past 12 months. Intel’s dividend yield at 4.2% is about twice Hewlett Packard’s. Intel has at least one major division that’s growing a lot. Intel has never fired a CEO months after hiring him, or reversed, on separate occasions, plans to build a key new product and break up the entire company, within months after making those decisions.

Furthermore, Intel right now has some 15 industry analysts that contend its shares are worth buying. While far from a majority, it’s a lot more support than the one or two who admit backing Hewlett Packard as a buy.

It’s possible that investors see more of a bargain in Hewlett Packard shares. While there are no earnings for a trailing price-earnings ratio, Hewlett Packard has a forward PE ratio of 6.5. But Intel, with an historic PE ratio under 10 and a forward PE of 11, is simply trading in cheap territory; an area well-plowed before by solid companies like Microsoft (MSFT) and Apple (AAPL). Hewlett Packard’s PE is more commonly associated with troubled foreign corporations.

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HPQ Forward PE Ratio Chart

Alternatively, Hewlett Packard investors are probably growing very fond of Meg Whitman, the former eBay (EBAY) leader who took over as chief executive in late 2011. In Whitman, investors see an end to the crazy surprises that have shattered the company in recent years. She promises only a very long slog toward greatness, but she contends the company will arrive in one piece. She’s focused on increasing market share in its core products, like servers and PCs, while boosting research money for mobile products (tablets, mainly.) Her restructuring plan helped bring in earnings above forecasts last quarter. It also has helped rejuvenate free cash flow, and that’s something Intel investors would like to see also.

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HPQ Free Cash Flow TTM Chart

Intel, on the other hand, has no such icon in which investors can bestow faith. Long-time CEO Paul Otellini will retire in May. It’s unclear whether the new leader will come from inside or out, or which of the numerous paths Intel is following that person will emphasize.

Intel, after being disastrously late to the mobile business, finally has numerous contracts for smartphones and tablets; few of which Americans have ever heard of. The company still focuses a lot of attention on Ultrabooks, which was a disappointment for sales as a lightweight notebook. Intel hopes it will fare better as a convertible (notebook, tablet computer in one). Intel just rented out some of its foundry space to another processor maker, leading to speculation that it could get serious revenue by doing the same for a larger company; say, Cisco Systems (CSCO) or Apple. And finally, selling the technology for data centers has become a fast-growing and lucrative business for Intel. How will the new CEO capitalize on that?

Intel appears to have at least as great turnaround potential as Hewlett Packard. Perhaps it just needs a Meg Whitman to show Wall Street how it will be done.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.


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