HPQ looks cheap under $15, but does it hold up to Berman's
stress test? The history of markets is littered with companies that
looked "cheap" until they looked cheaper - until they went
You can't go long or short on HPQ without reading this detailed
analysis of Hewlett-Packard's business. Also in this issue you'll
find Berman's take on Citigroup, Bank of New York, UPS, and Johnson
& Johnson. Read the eleventh edition of the
The Berman Value Folio
. Powered by Berman's keen insight and Trefis's interactive
modelling, the Folio's portfolio is up
since inception just ten months ago.
Portfolio Manager James Berman, president and founder of
JBGlobal.com, guides you through his fundamentals driven investment
rationale for specific companies. Berman relies on Trefis analysis
and modifiable tools to summarize his outlook and invites readers
to use these tools to challenge his rationale or create their own
views on stocks.
Download the Berman Value Folio
Hewlett-Packard: Value Trap or Hidden Oasis?
By James Berman
The "value trap" is the long-term investor's worst nightmare: a
quietly imploding company disguised as an irresistible bargain.
While traders worry about wrong-headed directional bets and
margin calls, the value investor lies awake fretting whether the
deal of a lifetime is really a sack of something else. The history
of markets is littered with companies that looked "cheap" until
they looked cheaper -until they went bust. Whether it was Digital
Equipment in the '80s or Kodak over the past 15 years, such traps
can produce shocking tales of prolonged value destruction.
Value traps are not exclusive to the tech sector, but they tend
to cluster there. The ever-shifting tech landscape is a common
place to see value "mirages": companies that trade at p/e ratios of
5 or less, at free cash flow yields exceeding 20%, where the
business model is slowly disappearing. All the while, the company
spouts endless trickles of cost-cutting and re-jiggering, which
investors lap up like thirsty desert travelers-until it all turns
to dust on their lips.