PC stocks had a great week: Hewlett-Packard, (HPQ) broke through $31, Microsoft (MSFT) broke above $40, and Intel (INTC) is trying to break above the June ’13 high of $25.98.
Here is our article from early October, 2012, detailing the attractive valuation of the PC stocks. Some of these stocks were trading for scrap value.
This article was so toxic, www.seekingalpha.com wouldn’t publish it. The editors rejected it.
The overwhelming positive to the group at that time was the cash-flow valuations. You can obfuscate cash-flow, but it isn’t easy.
Cash-flow is king for us as fundamental investors, which is why we are still a little leery of JC Penney. It is definitely not Best Buy (BBY) in terms of operating cash-flow. (JCP and BBY are retail, but I needed a valid analogy to make the point.)
I do think the PC group is on the verge of transitioning from deep-value and strict value investors to the GARP or growth crowd. HPQ is still trading at just 3.5(x) cash-flow as of the mid-February earnings report, while INTC is about 6(x) cash-flow.
We need to update the spreadsheet in the original article.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager