Selling in HPQ Overdone; Stocks 6% Undervalued
Cash flow from operating activities are considerably lower than would be estimated by merely taking the company’s figure directly from the 10K and 10Q. Adjustments must be made for their large employee stock plans which is offset through share buybacks. Further adjustment must be made for the low (aggressive) tax rate, normal working capital adjustments and other variables explained in the book. HPQ has large operating leases we add to net debt as well as a large unfunded pension liability given their liberal assumptions. They are a large beneficiary of the commercial paper market and their financial subsidiary.
Fair value for HPQ is $47.27
Regarding stocks in general, I would advise an equity position in mid-range of normal allocation, up from maximum cash position.
For our equity accounts, we are fully invested, but then again we believe we operate at a distinct advantage relative to other investors. Our model account is again out-performing the S&P for the year.
We again urge all of you to pre-order the text and I am sure your analytical skills will give you a big leg up relative to other professional security analysts.
