In the technology sector, 2015 will be remembered for the historic split-off of the iconic Hewlett-Packard Company. After about a year of consideration, the tech giant successfully split itself into two standalone companies — HP Inc. HPQ and Hewlett-Packard Enterprise HPE — effective Nov 1, 2015.
The company announced the split in Oct 2014. As separate companies, HP sells personal computers and printers, while Hewlett Packard Enterprise offers commercial computer systems, software and tech services.
Hewlett-Packard had been struggling to keep pace with the ongoing changes related to smartphones and cloud computing. We don’t think that the split will be particularly beneficial in terms of market position given the large number of players specializing in both the mobile and cloud segments.
Also, market challenges (for instance saturation in developed markets and mobile preference in emerging markets) and cost challenges (low-cost manufacturing in Asia has given Asian hardware makers an edge) aren’t going away. But separate management teams for HP and HPE might help to pursue and execute better on business and financial goals.
The demand for desktop PCs and printers is not as strong as it was 10 years ago. Both enterprise and consumer demands are shifting toward mobile devices that use the cloud for storage – something that Alphabet’s Google GOOGL, Amazon AMZN, Apple AAPL and Dell are focusing on.
With the commercial computing sector also favoring cloud storage, businesses are increasingly banking on virtualization of software and servers instead of the on-premise stuff that HPE typically sells.
To add to the woes, in November, Hewlett-Packard reported the last quarterly results for the combined companies, which were disappointing. The company’s top line and bottom line declined year over year. Moreover, it issued dismal first-quarter fiscal 2016 guidance for HP Inc., the PC business.
Things can’t be expected to improve materially in the near future as according to Gartner’s predictions for 2015 released in September, PC shipments (including premium ultramobiles) will decline 7.3% year over year primarily due to the lack of device replacement and a strong dollar. This was down from the July prediction of a 4.5% decline, which Gartner attributed at the time to the persistent slowdown in Western Europe, Russia and Japan caused by local currency devaluation against the U.S. dollar.
The only positive with respect to the PC market is that enterprise adoption of Windows 10 is expected to improve through 2016 and 2017, which can lead to a modest recovery.
But there are considerable uncertainties related to its served markets as well as its recent split. So the company holds a Zacks Rank #5 (Strong Sell). Nevertheless, the broader technology sector has several promising stocks to choose from. Based on growth, valuation and earnings statistics, we have zeroed-in on three such stocks which have a strong potential to yield solid returns over the next 1-3 months.
MeetMe Inc. MEET
Formerly known as Quepasa Corporation, MeetMe is headquartered in New Hope, PA. It owns and operates a social network which offers a platform for users to meet new people apart from social games and apps, monetized by both advertising and virtual currency.
Sporting a Zacks Rank #1 (Strong Buy), the company has a forward P/E of 15.4, much lower than the industry average of 38.1. Moreover, it has a long-term expected earnings growth rate of 20.0%, significantly higher than the industry average of 14.6%.
The Zacks Consensus Estimate has been revised upward over the last 60 days for fourth-quarter 2015. The company surpassed our EPS estimate in the last quarter by 50%. It has posted positive earnings surprises in 3 out of the trailing 4 quarters with an average of 166.67%.
LinkedIn Corporation LNKD
Headquartered in Mountain View, CA, LinkedIn is an online professional network which allows members to create, manage, and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities.
The Zacks Rank #2 (Buy) company has a long-term expected earnings growth rate of 35.1%, much higher than the industry average of 14.6%.
The Zacks Consensus Estimate for fourth-quarter 2015 has been revised upward over the last 60 days. The company beat our EPS estimate by a massive 81.25% in the last quarter and posted positive earnings surprises in 3 out of the past 4 quarters.
HubSpot Inc. HUBS
Headquartered in Cambridge, MA, HubSpot is an inbound marketing software platform that helps companies to attract visitors to their Websites, convert visitors into leads, and close leads into customers.
The Zacks Rank #2 company has a long-term expected earnings growth rate of 42.1% which is significantly higher than the industry average of 14.6%.
The Zacks Consensus Estimate for fourth-quarter 2015 moved up over the past 60 days. Last quarter, the company exceeded our EPS estimate by 11.11% bringing the four-quarter average to 10.38%.
FireEye Inc. FEYE
Milpitas, CA-based FireEye provides security platform for cyber attacks to enterprises and governments. The company offers web security, email security, file security and malware analysis.
The Zacks Rank #2 stock has a long-term expected earnings growth rate of 19.1% which is significantly higher than the industry average of 14.6%.
Over the last 60 days, the Zacks Consensus Estimate was revised upward for fourth-quarter 2015. The company beat our third-quarter EPS estimate by 14.77%, posting positive earnings surprises in 3 out of the trailing 4 quarters with an average of 11.20%.
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